Dow Set For Best Day In 3 Months As Stocks Try For Rebound From Trade-Sparked Rout

U.S. stocks closed higher Tuesday as the market regained some of its bullish form, a day after a sharp escalation in U.S.-China trade tensions triggered the worst session for major indexes since early January.

How did the benchmark indexes fare?

The Dow Jones Industrial Average DJIA, +0.82%  added 207.06 points, or 0.8%, to 25,532.05. The S&P 500 index SPX, +0.80%  rose 22.54 points, or 0.8%, to 2,834.41, and the Nasdaq Composite Index COMP, +1.14% gained 87.47 points, or 1.1%, to 7,734.49.

What drove the market?

The start of the week was marked by a ramp-up in trade tensions after China fired back at U.S. tariffs with retaliatory duties that could reach 25% on $60 billion in annual U.S. exports. That was after the U.S. last week raised tariffs on $200 billion in annual Chinese imports to 25% from 10%, and threatened more following talks that ended Friday without a deal between the two countries.

Investors are worried that an escalating fight between the two could harm the U.S., Chinese and global economies.

But some calm appeared to have been restored after President Donald Trump said late Monday that it should be clear in “three or four weeks” if a U.S. delegation’s recent trip to China to discuss trade was successful. “I have a feeling it’s going to be very successful,” he added.

Tuesday morning, the president took to Twitter to defend his trade strategy and mollify U.S. farmers, whose exports have collapsed amid the dispute, writing that: “When the time is right, we will make a deal with China. My respect and friendship with President Xi is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense.”

 

Our great Patriot Farmers will be one of the biggest beneficiaries of what is happening now. Hopefully China will do us the honor of continuing to buy our great farm product, the best, but if not your Country will be making up the difference based on a very high China buy……

The president also kept up public pressure on the Federal Reserve to lower interest rates as a means to help the U.S. economy cope with the effects of the trade spat.

 

China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!

What economic data and speakers were in focus?

Small-business optimism rose to a four-month high in April, gaining 1.7 points to 103.5, according to the NFIB Small Business Optimism index, released Tuesday morning.

U.S. import prices rose just 0.2% in April, below the 0.7% consensus estimate, according to FactSet. Export prices, meanwhile, rose 0.3% last month.

New York Fed President John Williams, speaking in Zurich, said early Tuesday that governments can play a role in changing the post-financial-crisis environment where short-term rates are lower than they have been historically.

What were strategists saying?

“There is still the a belief that a trade deal gets done because it’s in both parties’ best interest,” Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, told MarketWatch. “The market is giving the benefit of the doubt because it believes the Fed is there to put a bottom in the market,” if the trade dispute causes markets to fall to such an extent that it impacts the broader economy.

“The next key thing to look for is whether Xi and Trump talk on the phone at some point and try to get talks back on track. However, our concern is that it will require financial stress to create the necessary pressure to get the deal done,” said analysts at Danske Bank, in a note to clients.

Which stocks were in focus?

Apple IncAAPLWealth Strength IndexAAPL is Extremely Flat and trending Down, +1.58% shares rose 1.6% after shedding 5.8% Monday in the wake of a Supreme Court ruling that consumers can sue the company for forcing them to buy apps exclusively through the company’s App Store.

Shares of Ralph Lauren CorpRL, -3.66% fell 3.7% even after the clothing retailer

reported first-quarter sales and profits that surpassed Wall Street expectations, while raising its quarterly dividend by 10%.

Abercrombie & Fitch CoANF, -0.34% shares edged up 0.3% after the retailer said Chief Operating Officer Joanne Crevoiserat will leave the company as it has decided to eliminate the COO role.

Shares of Comcast CorpCMCSAWealth Strength IndexCMCSA is Extremely Flat and trending Down, +1.49% gained 1.5% after the cable giant announced that it has agreed to sell its 33% stake in Hul

u in five years to Walt Disney CoDIS, +1.42% for at least $27.5 billion, while immediately giving up its

voting rights over the streaming company.

How did other markets trade?

Asian markets posted modest losses, while European stocks traded higher, with the Stoxx Europe 600 SXXP, +1.01% rising 1%.

The U.S. dollar DXY, +0.00% inched higher, while gold prices GCM9, +0.12%  settled lower.

Oil prices CLM9, -0.44% climbed after Saudi Arabia said drones attacked an oil pipeline and that other energy infrastructure suffered attacks shortly after Yemen’s rebels claimed they had conducted a coordinated drone attack.

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