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THE GIST (“THE WHAT”)
Brushing aside the concerns of a slowing global economic growth story, the S&P 500 index surged to erase some of its recent sharp losses. In an attempt to avoid potential increase in consumer prices ahead of the upcoming holiday season, President Trump delayed the imposition of the proposed tariffs on more than half of the $300 billion worth of Chinese imports that were scheduled to go into effect on September 1 until mid-December. Reports that trade talks will resume in two weeks further eased trade tensions.
Rallying strongly at the open, the index maintained early session gains to close near session highs at 2926.32, up a solid 42.57 points and gaining 1.48% over previous session’s close. All of the eleven primary sectors participated in today’s relief-rally, with Technology stocks in the lead. Treasury yields also halted descend, suggesting a risk-on tone to today’s price action.
THE DETAILS (The “How & Why”):
Technology stocks surged 2.47% following news of tariffs reprieve after the U.S. Trade Representative postponed the imposition of new tariffs on more than half of the $300 billion worth of Chinese imports including smartphones, laptops, toys, video games, footwear and clothing until mid-December. Reports that the U.S. – China trade talks will restart in two weeks also fueled the gains. Apple Inc. gained 4.23%, leading the FAANG components higher. Micron Technology Inc., NVIDIA Corp, Qualcomm Inc. and Qorvo Inc all jumped more than 2% apiece.
Consumer Discretionary and Communication Services sectors also posted solid gains, up 1.71% and 1.53% respectively. Consumer Staples, Materials, Industrials and Financials benefited from de-escalating trade tensions, all closing more than 1% higher. Energy stocks also added to the day’s gains, despite oil prices slipping amid concerns of weakening global demand.
Meanwhile, Treasury yields halted their descent on de-escalating U.S. – China trade tensions. The 10-year Treasury yield posted its biggest climb since July, settling at 1.678%. The closely watched spread between the 2-year and 10-year Treasury yield narrowed to its flattest level since 2007.
Investors brushed aside an unexpected increase in core CPI reading which jumped 0.3% in July, registering the biggest two-month gain since 2006. Markets are still broadly expecting the Federal Reserve to reduce its benchmark interest rate in wake of intensifying trade tensions, despite signs of accelerating inflation.