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Trade optimism, Fed rate-cut expectation sends S&P 500 to record

Published 10/28/2019, 04:21 PM
Updated 10/28/2019, 04:21 PM
© Reuters. Traders work on the floor at the NYSE in New York

By Chuck Mikolajczak

NEW YORK (Reuters) - The S&P 500 hit a record high on Monday, while the Nasdaq fell just short of its lifetime high touched in late July as a more civil tone between the United States and China lifted hopes for a possible trade deal and investors looked toward a Federal Reserve rate cut later this week.

Microsoft Corp (O:MSFT) shares climbed 2.46%, making the stock among the biggest boosts to each of three major indexes after the technology giant won the Pentagon's $10 billion cloud computing contract, beating out Amazon.com Inc (O:AMZN).

After rising as much as 0.71% to 3,044.08, the benchmark S&P closed up 0.56% at 3,039.34, topping the record high of 3,025.86 hit on July 26, while the Nasdaq ended the session less than 5 points below its closing high. The Dow Jones Industrial Average ended less than 1% away from its record closing level.

President Donald Trump said on Monday he expected to sign a significant part of a trade deal with China ahead of schedule but did not elaborate on the timing, building on optimism from Friday when Washington said it was "close to finalizing" some parts of a trade deal.

Economic data shows the trade war between the world's two largest economies has begun to take a toll on both countries, leading to worries about a global slowdown.

Global central banks have responded by easing monetary policy. The Federal Reserve is expected to follow that trend at its two-day policy meeting beginning on Tuesday, with high expectations that it will cut interest rates for a third time this year.

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"After we finish earnings season and get through this Fed meeting, people will be looking to the trade deal," said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina. "Importantly, as you watch the economic numbers come in here and globally between now and year end, you want to continue to see incremental positive sequential changes. You want to get some confirmation that in fact growth has bottomed and has started to improve."

The Dow Jones Industrial Average (DJI) rose 132.25 points, or 0.49%, to 27,090.31, the S&P 500 (SPX) gained 16.79 points, or 0.56%, to 3,039.34 and the Nasdaq Composite (IXIC) added 82.87 points, or 1.01%, to 8,325.99.

The outlook for a quarter percentage point cut in U.S. borrowing costs have jumped to 94.1% from 49.2% last month, according to CME Group's FedWatch tool.

The third-quarter earnings season has managed to ease some concerns related to the impact of trade tensions on corporate profits, with over 78% of the 204 S&P 500 companies that have reported so far surpassing profit expectations, according to Refinitiv data. Still, third-quarter earnings are expected to show a decline of 2%.

Investors are waiting for earnings from heavyweights this week such as Apple Inc (O:AAPL), Starbucks (O:SBUX) and Merck & Co Inc (N:MRK).

Chipmakers, which have acted as a proxy for trade tensions with China, gained 1.75% on Monday. The technology (SPLRCT), healthcare (SPXHC) and communication services (SPLRCL) sectors gained more than 1% each.

Among other stocks, AT&T Inc (N:T) rose 4.28% after the U.S. wireless carrier said it would add two new board members and consider selling off up to $10 billion worth of non-core businesses next year.

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Tiffany & Co (N:TIF) surged 31.63% after Louis Vuitton owner LVMH (PA:LVMH) made a $120 per share offer to buy the U.S. luxury jeweler.

Advancing issues outnumbered declining ones on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored advancers.

The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 115 new highs and 52 new lows.

Latest comments

fed cuts to hard u can easily see it onnthe repo market i know fed need to hike 2 times instead of 4 in 2018 but cutting is more dangerous cos u build debt on rates cutting us let debt grow faster that pressure inflation the tax cuts of trump work either on the bzd side he and powell made a bomb of us economy
Also. If they keep cutting, it will be very hard to raise when all this free money flows.
if they raise rates. market will crash. look at Q4 2018
Yes! And they raised when the market already crashed 10% then another 10% after they raised last December. A total of 20% last winter. Why not raise now when we have went up almost 25%?
Economy too strong and no issue for China. So why cut the rate? Instead please increase it!
Exactly. Therefore I think they might raise the rate since the economy is so "strong".
It's all on hope, all the way up, almost 14 days in a straight. Preparing for a big fall?
Anyone knows why 94% is the probability of rate cut after Brexit delay, just before signing partially Phase-1 agreement with China and fairly good company results?
market expectations if powell is a leadet he wont cut but he does out fear of the market its a wussy
the same people who missed last 10 years of bull market is now shouting 'get out', lol
Markets are addicted to Hopium.
markets have almost always been based off speculation more so than factual evidence
A red candle with long wick....l am looking for this week.
Too hot these markets. Leave it now or you will die...
Crazyyy how this hope is taking the market to the sky. What will happen when it change its direction??
it goes down?
hope is an oft used word in these days of false prosperity. Hmmmmm.
the rate cut hope started from last month, my friend
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