Stocks ended higher Friday, with the S&P 500 index and the Nasdaq notching their best week in nearly seven years, after upbeat comments from a U.S. trade official who suggested that some sort of a trade deal is possible during a meeting between President Donald Trump and Chinese leader Xi Jinping at the G-20 summit in Argentina.
How did the benchmarks fare?
The S&P 500 index SPX, +0.82% climbed 22.41 points, or 0.8%, to 2,760.17, while the Nasdaq Composite Index COMP, +0.79% gained 57.45 points, or 0.8%, to 7,330.54. The Dow Jones Industrial Average YMZ8, +0.78% rose 199.62 points, or 0.8%, to 25,538.46 after being down by as much as 72 points at the open.
Both the S&P 500 and the Nasdaq logged their best weekly performance since December 2011 while the blue-chip index posted its strongest week since November 2016.
What drove the market?
Trade representative Robert Lighthizer told reporters at the Group of 20 confab that he would be “very surprised” if the dinner between Trump and Xi “was not a success.” The Wall Street Journal also reported that China could resume buying U.S. farm and energy products if the U.S. defer a scheduled increase in tariffs on Chinese products.
In contrast to the protracted standoff between the U.S. and China, leaders of all three North American nations on Friday signed the new U.S.-Mexico-Canada Agreement, meant to replace the Nafta pact that has governed North American trade for more than 20 years. The agreement still needs to be approved by the three countries legislatures before the deal can take effect.
Investors are hopeful that the U.S.-China trade negotiations will be resolved in a similar way as the U.S.-China-Mexico pact, which was agreed to only after the president issued a series of tough statements, and engaged in significant brinkmanship, before finally compromising on a deal at the 11th hour.
The development on the trade front comes on the heels of a week of speeches by Federal Reserve officials who appeared to have toned down their stance on the monetary policy. Investors had been fearful that the central bank will raise rates aggressively in 2019 after a widely expected 25 basis-point hike in December.
What Fed speakers and data were on tap?
New York Fed President John Williams said that the Federal Reserve is undergoing a strategic review of its interest-rate policy, which could lead to the central bank tolerating higher inflation rates than it is current 2% target.
The MNI Chicago business barometer jumped 8 points to 66.4 in November to a 4½ year high, ending a streak of three straight declines. The survey is often seen as a bellwether for the broader U.S. economy.
What were strategists saying?
Randy Frederick, vice president of trading and derivatives at Schwab Center for Financial Research, credited much of the market’s gains to positive vibes from the Group of 20 summit.
“President Trump has been seen smiling in many photo ops, and the expectations bar seems to be rising for his dinner tomorrow night with Chinese President Xi Jinping.”
Tom Essaye, president of the Sevens Report, said in a note to clients that the market is expecting a “trade war truce” to result from this weekend’s trade talks, in which “Trump and Xi agree to freeze tariffs at current levels, and begin a multimonth negotiating period aimed at a comprehensive deal.”
If the truce doesn’t materialize, however, and signals emerge that current 10% tariffs on $250 billion in Chinese imports will be raised in January, Essaye predicts a significant selloff. “We’d likely see the post Powell bounce erased, and depending on what happens with Italy and the EU, a serious test of support at 2,600 for the S&P 500 before year-end,” he wrote.
Which stocks were in focus?
Shares of Marriott International Inc. MAR, -5.59% slid 5.6% after the hotel management company said that it encountered a data breach affecting hundreds of millions of its customers.
GameStop Corp. GME, -6.63% tumbled 6.6% after the company issued weak full-year guidance for 2018. The stock is down 26% on the year.
Workday Inc. WDAY, +12.87% shares rallied 13% following a third-quarter earnings report that beat Wall Street expectations. These beats helped convince Stifel Nicolaus to raise its price target for the stock from $150 to $160.
Shares of Laboratory Corp. of America Holdings LH, -9.99% slumped 10% after the company cut it is full-year 2018 guidance.
PVH Corp. PVH, +0.67% stock rose 0.7% after the Calvin Klein parent company reported third-quarter earnings above analysts estimates and raised its full-year 2018 guidance.
Shares of Goldman Sachs GS, -2.13% fell 2.1% after reports that the Federal Reserve is intensifying its investigation into the bank’s relationship with the 1MBD sovereign-wealth fund. The news comes as Bank of America downgraded the stock, citing uncertainty surrounding the scandal.
How were other markets trading?
Asian stocks were mostly higher with Japan’s Nikkei NIK, +0.40% gaining 0.4%, while Hong Kong’s Hang Seng Index HSI, +0.21% advanced 0.2% and the Shanghai Composite Index SHCOMP, +0.81% rose 0.8%.
European markets were broadly lower with the Stoxx Europe 600 SXXP, -0.17%finishing weaker.
Crude oil CLF9, -1.42% ended down 1% but trimmed much of its earlier losses on speculation over a production cut among big producers. For the month, January West Texas Intermediate declined 22%. Gold prices GCG9, -0.21% settled lower while the dollar DXY, +0.42% gained.
—Mark DeCambre contributed to this report