It feels like markets have been inching toward this point for some time. The point I’m referring to is some constructive commentary regarding trade between the U.S. and China, the world’s two largest economies.
News hit the wires last night that representatives of the two nations will meet in Washington, D.C. next month to discuss trade issues. The news sent markets soaring today. Importantly, the S&P 500 broke past some stiff resistance today, encouraging some technical analysts to opine that this rally might have some legs to it. That would be extraordinary, considering September’s dubious reputation.
Adding to stocks’ gains today was a bullish private payroll survey from ADP, which showed the addition of 195,000 private sector jobs in August, easily topping the 148,000 new jobs economists, on average, had expected. The Department of Labor reveals its August jobs number tomorrow before the bell, with economists on average expecting the addition of 160,000 new jobs, with unemployment holding steady at 3.7% and wages growing 3%.
Today, the Nasdaq Composite surged 1.75% while the S&P 500 climbed 1.31% to put the technically significant 3,100 level back in play. The Dow Jones Industrial Average gained 1.41%. In late trading, 27 of the Dow’s 30 components were higher.
Winners Galore
Stoked by the trade news, tariff-sensitive Caterpillar (NYSE:CAT) was one of the Dow’s best-performing names today, gaining more than 3%.
Shares of Caterpillar “headed for the biggest gain since April as trade tensions eased, improving the sales outlook for the world’s largest maker of construction and mining equipment,” according to Bloomberg.
Caterpillar’s Thursday move wasn’t surprising, but it was a pleasant surprise to see International Business Machines (NYSE:IBM) keeping pace with Caterpillar for top honors in the Dow today.
IBM, a good way for conservative investors to get some tech exposure, is on a torrid pace of late, up nearly 4% this week. With today’s surge, the stock reclaimed its 50-day moving average. IBM stock could reach $150 to $155 in the near-term.
Industrial conglomerate United Technologies (NYSE:UTX) jumped more than 1% following some bullish analyst chatter. Cowen analyst Cai von Rumohr likes United Technologies stock and recommends buying the name right here, right now.
“Investors seem fixated on the [Raytheon] merger but under-appreciate major cyclical turns at Otis [and] Pratt, [United Tech’s] recession resistance, and likely [second-half earnings] beats,” von Rumohr said in a Wednesday research report. “With [the] separation [and] merger on track, transactional overhang should abate, offering upside to our $150 [price target].”
Exxon Mobil (NYSE:XOM), a name I highlighted yesterday, also gained more than 1% today on news that the largest U.S. oil company is selling its Norwegian oil and gas assets for $4 billion. The move should help the company bolster its cash flow. Exxon’s cash position is one reason some analysts remain enthusiastic about the stock.
Odds And Ends
With investors flocking to riskier assets today, bond yields soared (finally), helping each of the Dow’s financial services components trade noticeably higher on the day. That included Goldman Sachs (NYSE:GS).
Underscoring banks’ sensitivity to low interest rates, shares of Goldman jumped more than 2% despite noted bank analyst Dick Bove of Odeon Capital cutting his rating on the investment bank to “hold” from “buy.” The analyst noted that GS’ trimming some high level executives “suggests an unhealthy level of turmoil.”
The Dow offenders today were defensive names Coca-Cola (NYSE:KO), Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG). All fell by modest percentages.
Bottom Line
Investors got significant help today on the trade front. Tomorrow is a new today and one that brings comments from Federal Reserve Chairman Jerome Powell. If the jobs number is strong and the trade talks appear viable, investors hoping for more rate cuts may want to pin those hopes on 25, not 50, basis points. As it is, some market observers believe global central banks are close to running out of tools.
“The U.S. is not quite there yet, but we will see as soon as next month how much closer the ECB gets to monetary debasement (we think they’re still some ways away, as they haven’t fully exhausted their negative interest rate path, it seems),” said BlackRock. “Ironically, the beggar-thy-neighbor implications of competitive devaluations will almost certainly incite a response from countries who may not originally even have needed to resort to currency debasement in the first place, raising the potential for full blown currency war.”
As of this writing, Todd Shriber does not own any of the aforementioned securities.
