U.S. stocks pared some gains after optimism for a trade war truce between the U.S. and China had sent equities soaring earlier during Monday’s session.
The S&P 500 (^GSPC) rose 1.09%, or 30.2 points, as of market close. The Dow (^DJI) rose 1.13%, or 287.97 points, pulling back after adding more than 400 points at the intraday highs. The Nasdaq (^IXIC) advanced 1.51%, or 110.98 points.
Each of the three major U.S. indices posted their best rally at market open since mid-October, with more than 80% of S&P 500 stocks opening in the green. By about 12 p.m., however, just 56% of S&P stocks were in positive territory.
Suggestions of softening trade tensions between the U.S. and China helped spur the early advance. Trump and Xi struck a deal on Saturday at the G20 in Argentina wherein the White House agreed to hold off on bumping up the 10% rate of tariffs on $200 billion worth for the next 90 days. Trump had previously planned to boost the levies to a rate of 25% at the start of next year. China, for its part, will purchase a “tremendous amount of agricultural and other products” from the U.S., Trump said aboard Air Force One on Saturday.
Some analysts noted, however, that the seemingly two-way ceasefire may not be as clear-cut as it appears from early reports. For one thing, the two presidents opted for separate press conferences rather than a joint session to address the meeting, allowing “both to describe the unwritten ‘deal’ in their own words, based on their own perceptions and recollections,” Carl B. Weinberg, chief international economist for High Frequency Economics, wrote in a note.
According to the White House, “President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.” However, the Chinese “see this a bit differently, and use much less specific terms” in their own state news agency account of the terms agreed to following the G20 meeting, Weinberg said. “We see plenty of talk, but no U.S. hot-button agenda items have been addressed on China’s side.”
The G20 summit also provided the backdrop for world leaders to address the closely monitored topic of oil prices and production. Oil prices took a sharp turn higher Monday following a series of announced global efforts to temper supply. U.S. West Texas Intermediate crude (CL=F) settled higher by 4% to $52.95 per barrel on Monday, the biggest one-day gain since June. Brent crude (BZ=F) rose 5% to settle at $61.69 per barrel.
Russian President Vladimir Putin said Sunday at the G20 summit that Russia and Saudi Arabia agreed to extend their deal to manage the oil market OPEC+ through 2019. Suhail Al Mazrouei, OPEC’s president and U.A.E. Energy Minister, said on Sunday that he was optimistic that OPEC+ will come to an agreement to cut output in 2019 during the oil cartel’s meeting on Thursday. And Alberta, Canada Premier Rachel Notley announced on Sunday a temporary production cut of 325,000 barrels per day for raw crude oil and bitumen beginning January 1 in an effort to reduce a supply glut.
The new cease-fire in the trade dispute between the U.S. and China should boost rattled financial markets, at least likely through year’s end. (AP Photo/Richard Drew)
Shares of Tesaro (TSRO) surged following an announcement that GlaxoSmithKline (GSK) agreed to buy the pharmaceutical company for $5.1 billion. The deal, coming out to $75 per share, represents a more than 60% premium over Tesaro’s closing price of $46.38 per share on Friday. Bloomberg first reported last month that Tesaro, the maker of cancer treatment drugs, was considering a sale. GlaxoSmithKline said it expects that the deal will close in the first quarter of 2019. Shares of GlaxoSmithKline declined 7.79% to $38.61 per share as of market close, while shares of Tesaro jumped 58.47% to $73.50.
Chipmakers including Advanced Micron Devices (AMD), Nvidia (NVDA) and Qorvo (QRVO) advanced following reports of the temporary trade truce between Trump and Xi. The announcements provided a sense of relief for semiconductors given chipmakers’ major exposure to revenue in China. AMD’s stock jumped more than 11% to $23.71 per share as of market close, however, is still down about 30% from its intraday high this year of $34.14 from mid-September. Shares of the Philadelphia Semiconductor exchange-traded fund (SOXX) rose 2.63% as of market close.
Shares of Caterpillar (CAT) edged higher, extending gains from Friday, following an upgrade and increased price target from Bank of America Merrill Lynch. The firm upgraded Caterpillar’s stock to Buy from Neutral and lifted its 12-month price target to $163 from $140. Analyst Ross Gilardi cited the U.S.-China temporary ceasefire, along with signals last week of a slightly less hawkish Federal Reserve, as the rationale behind seeing a 20% upside potential on the stock. Caterpillar is considered a bellwether for the U.S. manufacturing sector, and its shares fell after the company said in October that the trade war was increasing the cost of its raw materials. Shares of Caterpillar rose 2.42% to $138.95 each as of market close.
Shares of major automakers advanced after Trumpsaid in a Twitter post on Sunday that China had agreed to “reduce and remove tariffs” on cars it imports from the U.S. Shares of General Motors (GM) rose 1.32% to $38.45 each as of market close, while shares of Ford (F) and Fiat Chrysler (FCAU) advanced 2.07% and 4.04%, respectively. Shares of European automaker Daimler (DAI.DE) rose 4.54%, while shares of BMW (BMW.DE) popped 4.78%.
Deutsche Bank’s (DB) stock pointed to a recovery after its shares fell to a record low on Friday following a two-day raid linked to money laundering allegations. The bank’s CEO told a German publication over the weekend that the company is not at risk of a takeover even amid the probe, which extended to the offices of the bank’s board members. Shares of Deutsche Bank rose 2.62% to $9.40 each as of market close.
Shares of Canadian cannabis company Aphria (APHA) tumbled after noted Quintessential Capital Management short-seller Gabriel Grego presented a scathing report of the company Monday and raised concerns that its acquisitions were linked with company insiders. Grego said the company has spent more than 700 million Canadian dollars on an “acquisition spree,” to buy companies with little or no sales, dilapidated office facilities and only conditional licenses. Aphria responded to the presentation and said in a statement to Yahoo Finance,“Allegations that have been made by the short seller Quintessential Capital in the report that they published this morning are false and defamatory.” Shares of Aphria slid 27.53% to $5.72 each as of market close on the Nasdaq.
ECONOMY: ISM’s Manufacturing Index increases more-than-expected in November
The Institute for Supply Management’s Manufacturing index of national factory activity increased to 59.3 in November from 57.5 in October, according to a report released Monday. New orders rose to 62.1 in November from 57.4 in October, while the production and employment indices also posted gains. ISM also noted that 13 out of the 18 manufacturing industries reported growth in November, led by computer and electronic products, plastics and rubber products and paper products.
“The rebound in the ISM manufacturing index in November primarily reflects the strength of domestic demand and provides some support to our forecast that GDP will expand by 2.7% annualized in the fourth quarter,” Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note. “Further ahead, however, we expect a combination of a stronger dollar, weaker global backdrop and slowing domestic demand to weigh on the sector.”
An index of economic health in the manufacturing sector from IHS Markit came in lower-than-expected in November, according to the firm’s latest results. The headline U.S. manufacturing PMI index came in at 55.3 in November, down from 55.7 in October and falling short of consensus expectations of a reading of 55.4, according to Bloomberg data. A headline PMI above 50 indicates expansion compared to the month prior. Despite the tick down in the headline reading, new orders rose to 56.7 in November from 56.5 in October, marking the highest reading since May.
“The survey acts as a reliable guide to the official manufacturing data, and suggests that factory output is growing at an annualized rate of around 1.5% so far in the fourth quarter, providing a material but by no means impressive contribution to GDP,” Chris Williamson, chief bureau economist at IHS Markit, said in a statement. IHS’s forecast is for GDP growth of 2.5% in the fourth quarter, Williamson added.
U.S. construction spending decreased by 0.1% in October, the Census Bureau announced Monday, marking the same pace of decrease as in September. Consensus expectations, however, had been for an increase of 0.4% for outlays in October. This is the third consecutive month of decreases for construction spending in the U.S. Private residential construction declined 0.5%, while total public construction spending rose 0.8%.
