U.S. stocks closed slightly higher Friday, though well off intraday peaks, after President Donald Trump and Chinese officials announced a trade pact that includes a rollback of some tariffs, the scrapping of further duties originally set for Sunday, and promises of targeted U.S. agricultural purchases by China.
How did the benchmarks perform?
The Dow Jones Industrial Average DJIA, +0.01% rose 3.33 points, or less than 0.1% to 28,135.38, after hitting a high at 28,290.73, while the S&P 500 index SPX, +0.01% gained 0.23 points or 0.01% to 3,168.80, eking out a new record close, and the Nasdaq Composite Index COMP, +0.20% added 17.56 points, or 0.2%, to 8,734.88, also a record.
At session highs, the Dow had risen 158.68 points, or 0.6%, the S&P gained more than 14 points, or 0.4% and the Nasdaq gained 52 points, or 0.6%, with all three benchmarks setting new intraday highs.
For the week, the Dow gained 0.4%, while the S&P added 0.7% and the Nasdaq advanced 0.9%,
What drove the market?
A “skinny” trade deal was announced by China and the U.S., but doubts about the details kept stocks, which mostly hit records on Thursday, in check.
China held a news conference in Beijing announcing an agreement on U.S.-China trade and said it would increase purchases of U.S. agricultural products and was offer new intellectual property protections in return for a reduction in U.S. tariffs.
More U.S. import duties that were planned to start from Sunday on more than $150 million in annual consumer goods “won’t be charged because of the fact we made the deal,” President Trump the president said. In separate comments, Trump said China would most likely buy $50 billion of farm goods.
“The United States and China have reached an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange,” according to a statement by the U.S. Trade Representative.
The statement said that the U.S. “will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.” suggesting that tariffs of 15% implemented on Sept. 1 will be cut in half. The president said a so-called phase-two deal will be discussed immediately rather than after the 2020 presidential election.
Chinese officials said the U.S. would remove more tariffs in stages, though no details were given. U.S. Trade Rep. Robert Lighthizer said that the actual text of the deal will be signed sometime in January, and the reduction of levies won’t take effect until 30 days after that, CNBC reported.
Lighthizer told reporters at the White House, that China will boost U.S. agricultural purchases by $32 billion from previous levels over a two-year period, bringing annual purchases by Beijing to $40 billion annually, with an eye toward $50 billion annually, the Wall Street Journal reported.
Some market strategists, however, expressed some concern that the agreement wasn’t substantial enough to support further stock buying after Thursday’s burst higher, following the initial reports.
“The deal isn’t as robust as some in the market hopes for, so it’s completely reasonable for the market to pull back and take some profits,” Randy Frederick, vice president of trading and derivatives at Charles Schwab told MarketWatch. “The market had already been pricing in the Dec. 15 tariffs getting removed.”
Frederick said it is unlikely that further “phase-2” deal can be reached before the U.S. elections in November. “The big question is whether the economic data and earnings are sufficient, plus the promise of no new tariffs, to push the market higher.”
Meanwhile, U.K. Prime Minister Johnson’s Conservative Party swept to a landslide victory in elections on Thursday, securing a strong majority in Parliament. The convincing win gives him support to secure a Brexit deal and negotiate a new relationship with the European Union next year. Brexit concerns have been cited as one lingering headwind for global investors.
In economic data, U.S. retail sales rose just 0.2% higher in November, below the 0.5% expected by economists polled by MarketWatch, though sales in October were revised to show a 0.4% increase, up from 0.3%. The figures were dragged lower by a decline in purchases at department stores, restaurants, clothing stores, pharmacies and outlets that sell sporting goods, while internet-based sales jumped 0.8%.
Which stocks were in focus?
Broadcom Inc. AVGO, -3.78% shares fell 3.8%, after it missed fourth quarter profit forecasts late Thursday, though it raised its outlook for 2020. In addition, analysts expressed concern about the company’s attitude toward its wireless-chip business, which it called “non-core” during a conference call.
Oracle Corp. ORCL, -3.47% were under pressure after the software company posted better-than-expected earnings for its fiscal second quarter but came up a bit short on revenue, where it has struggled for years. Shares fell 3.5%.
Costco Wholesale Corp. COST, -1.84% declined 1.8% after the bulk retailer reported fiscal first quarter profit growth Thursday evening that beat analyst expectations, but sales growth that fell short.
Adobe Inc. ADBE, +3.92% shares gained 3.9% after the digital marketing and media company reported fiscal fourth-quarter adjusted earnings that beat analyst expectations and a more than 20% increase in revenue after the close Thursday.
How did other markets trade?
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -3.53% fell 7.5 basis points Friday to 1.826% after surging to a four-week high Thursday.
West Texas Intermediate crude CLF20, +1.01% 89 cents, or 1.5%, to settle at $60.07 a barrel on the New York Mercantile Exchange. Gold prices GCG20, +0.54% were also edged higher, rising $8.90, or 0.6%, to settle at $1,481.20 an ounce on Comex.
The U.S. dollar lost value against a basket of its trading peers, with the U.S. dollar index DXY, -0.23% declining 0.2%.
In Europe, stocks closed higher with the Stoxx Europe 600 SXXP, +1.09% up 1.1%.
In Asia overnight, stocks rallied, with the China CSI 300 000300, +1.98% gaining 2%, Japan’s Nikkei 225 NIK, +2.55% adding 2.6% and Hong Kong’s Hang Seng Index HSI, +2.57% rising 2.6%.