US stocks boosted by encouraging update on China trade talks
The S&P 500 closed just short of an all-time high on Friday as investors welcomed solid company earnings reports and an encouraging update on trade talks between the US and China.
Technology, communications services and financial stocks powered the rally. The index ended within 0.1% of its record set on July 26. It also notched its third straight weekly gain.
Strong earnings reports from Intel, Charter Communications and other companies helped reverse a mixed start.
The buying accelerated around midday after the US Trade Representative’s office said the discussions with China’s negotiating team “made headway and the two sides are close to finalising some sections of the agreement.”
“You’ve had indexes around the world make new highs since the last time the S&P did,” said Willie Delwiche, investment strategist at Baird. “If we want to see a new high that’s going to be durable we need to see more US broad market improvement. It’s heading in that direction, but it’s not there yet.”
The S&P 500 rose 12.26 points, or 0.4%, to 3,022.55.
The Dow Jones Industrial Average gained 152.53 points, or 0.6%, to 26,958.06. The Nasdaq climbed 57.32 points, or 0.7%, or 8,243.12. The Russell 2000 index of smaller stocks picked up 8.53 points, or 0.6%, to 1,558.71.
The US-China trade conflict, which has led both sides to impose billions in tariffs on each other’s goods, has hit financial markets and stoked worries that the dispute could tip the global economy into a recession.
Those worries eased in recent weeks, after Washington and Beijing worked to calm tensions and then resumed negotiations.
That has allowed investors to focus on company earnings reports in the past two weeks. Traders want to get a sense of how Corporate America is faring against the backdrop of the costly trade war between the world’s two biggest economies.
Earnings reports so far have mostly exceeded Wall Street analysts’ modest expectations. However, many of those that delivered improved results for the quarter have also issued disappointing profit outlooks.
Of the roughly 40% of the companies in the S&P 500 that have reported so far, 80% of them had results that topped Wall Street’s earnings forecasts, while 64% beat revenue estimates, according to FactSet.
Factoring in the earnings reports that have already come in, analysts expect earnings from S&P 500 companies for the July-September quarter will be down 3.7% from a year ago. That is slightly better than the 4% drop that analysts were initially expecting.
As of Friday, some 38 companies in the S&P 500 had issued earnings forecasts for the fourth quarter. Of those, 26 issued negative guidance and 12 gave a positive outlook. That works out to 68% of those companies lowering their guidance, which is just below the five-year average of 70%, according to FactSet.