Dow, S&P Snap 3-Week Skids on Trade Agreement

The major indices jumped more than 1% on Friday and snapped a couple weekly losing streaks as progress was finally made on the trade conflict. 

The partial agreement between the U.S. and China was pretty much a bare bones deal, but it will hopefully improve trade tensions that seemed to be getting worse as recently as this past Tuesday.

Most importantly for the market, the tariff hikes scheduled for Oct. 15 will be delayed. Meanwhile, China agreed to purchase $40 to $50 billion more agricultural products.

President Trump called it a “substantial phase one” agreement, which means they’ll be a lot more meetings between the two countries as they work to further undo the conflict while also improving their business relationship.

The deal was good enough for a solid rally to end the week. The NASDAQ jumped 1.34% (or about 106 points) to 8057.04, while the Dow increased 1.21% (or 319 points) to 26,816.59. The S&P was up 1.09% to 2970.27.

The indices did come well off their highs. The Dow was north of 500 points at its best.

Most likely, the market’s just being its usual demanding self. The deal doesn’t end the conflict, nor does it pull back existing tariffs or even delay the ones scheduled for December.

Nevertheless, it’s progress and potentially a first step on making more comprehensive changes. It’s also a whole lot better than the two sides screaming at each other from across the ocean and retaliating with ever higher tariffs.

Plus, today’s rally was enough to break the Dow and S&P out of their three-week losing streaks. The indices were up 0.9% and 0.6%, respectively over the past 5 days. The NASDAQ was also up 0.9%, which makes for back-to-back positive weeks.

Not bad for a week that started with a couple down days, including a selloff of well over 1% on Tuesday.

So is this deal enough to get stocks back to all-time highs? Earnings season will probably have a say in that regard, and it will start next week with a few of the big banks reporting.

And believe it or not, but there may be some progress on the Brexit front as well.

So let’s enjoy this trade agreement for now, but remember that the fourth quarter is just getting started!

Today's Portfolio Highlights:

Value Investor: "The market hates uncertainty so this (trade agreement) will soothe Wall Street, at least for a few weeks, or until something is actually signed. Otherwise, the big focal point now shifts to earnings season. Next week, the official beginning of earnings season begins with JP Morgan and the other major banks. It will then be a 2 to 3 week succession of all the big tech and industrial names, including FAANG.

"Yes, the economy is slowing but it's not in a recession. We've seen these manufacturing slowdowns in the past, including in 2015-2016, and the economy was able to get a second wind. I believe we're in another similar situation. The US consumer is still bullish and that can go a long way to keeping the economy out of a recession.

"Too many people were calling the recession and were pessimistic. It was a huge contrarian indicator. It simply isn't that bad out there. And now the Fed also has Wall Street's back. It's a combination for new highs in stocks. Buckle up. A bullish run could be coming this earnings season." -- Tracey Ryniec, who will see reports next week from JPMorgan (JPM) and Synchrony (SYF) on Tuesday and Friday, respectively.

Have a Great Weekend!
Jim Giaquinto

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