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S&P 500 Futures Rise as Tariff Thaw Extends Best Gain Since 2011

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December 3rd, 2018

U.S. stock futures surged as a cessation of hostilities between the U.S. and China in their trade war helped bulls build on the biggest weekly advance in seven years.

December contracts on the S&P 500 jumped 1.8 percent as of 10:11 a.m. in London, while futures on the Nasdaq 100 Index and Dow Jones Industrial Average rallied 2.6 percent and 2 percent, respectively. The cash S&P 500 climbed 4.9 percent in the five days through Friday, fueled by a dovish take on interest rates from Federal Reserve Chairman Jerome Powell.

Investors bracing for disappointment at the G-20 summit instead got a pledge from U.S. President Donald Trump to delay new tariffs for 90 days as trade negotiations are redoubled. The U.S. had previously threatened to push ahead on Jan. 1 with higher levies on $200 billion worth of Chinese goods. “Powell’s comments were a net positive for the markets, and the trade truce will be another stimulus,” Walter “Bucky” Hellwig, senior vice president at BB&T Wealth Management, said by phone. “Together, they alleviate the two main concerns the markets have had for months and set the stage for a year-end rally. It’s a big difference from where we were last weekend.”

Seven days ago, the S&P 500 had just capped its second straight down week and stumbled into a correction, capping a 10 percent drop from its last record close in September. In addition to trade and central-bank worries, investors have been beset by concerns the rate of global growth is slowing and that 2019 earnings estimates for U.S. companies are too high. A stomach-turning drop in oil prices from above $75 a barrel to around $53 now has also tested conviction about the economy.

Weekend developments may provide “short-term relief, but in reality it’s just ‘kicking the can down the road,’” said Michael Mullaney, director of global markets research at Boston Partners. “Near-term focus will now shift back to the Fed and what they do with the dot plot this month. My instinct is that investors will be expecting a more dovish alteration to the current ‘vote’ distribution. If that doesn’t happen, the market will be pressured again.”

Nothing that happened this weekend was ever likely to sound an all-clear for markets, Dennis Debusschere, Evercore’s head of portfolio strategy, wrote last week. Volatility has been a fact of life for anyone owning U.S. equities since January, a stretch that featured two 10 percent corrections and more single-session declines of at least 3 percent than happened in the previous three years.

“If a trade war ‘ceasefire’ is reached at the G-20, it would provide a boost to risk assets near term,” he said. “But the damage from trade spats along with the general weakening of global growth remains a medium-/long-term headwind.”

With a month left in the year, the S&P 500 is up 3.2 percent in 2018 and sits close to the midpoint of its annual range. Relative to earnings, the index trades at a multiple of about 19, cheaper than any time since early 2016.

Several high-profile strategists had been playing down chances of an accord last week, which may be contributing to the steepness of the rally in futures. Caveats still abound, including the possibility something happens on Trump’s twitter handle in the next hours or days to diminish the cheer. For now, strategists are optimistic.

“This is a strongly market positive result for the short term,” wrote Terry Haines, the head of political analysis at Evercore ISI. Before the weekend, other analysts at the same firm had seen a one-in-three chance Trump would pause or delay a January escalation of 25 percent tariffs on $200 billion of Chinese imports. On Saturday, the White House said the U.S. will leave existing tariffs at 10 percent and refrain from raising them on Jan. 1.

Still, something was sowing optimism at the end of last week. The cash S&P 500 tacked on 20 quick points in the last three hours of Friday’s session, while several series of bullish call options on the iShares China Large-Cap ETF were among the most heavily traded equity derivatives in U.S. markets on that day.

 - Bloomberg.

See Also: S&P 500 News Blog Dow Jones Industrial Average

 

Stocks in U.S. Fluctuate as S&P 500 Heads for Its Best December Since 1991

December 31st, 2010

U.S. stocks swung between gains and losses, with the Standard & Poor’s 500 Index heading for its second straight annual advance and its best December since 1991.

Hewlett-Packard Co. and Microsoft Corp. fell at least 0.7 percent to lead losses in the Dow Jones Industrial Average. CVS Caremark Corp. gained 0.1 percent after the drugstore operator agreed to buy a unit of Universal American Financial Corp. Borders Group Inc. slumped 19 percent after suspending payments to some publishers. Alcoa Inc. rose 1.6 percent for the biggest gain in the Dow.

The S&P 500 fell less than 0.1 percent to 1,257.69 as of 11:21 a.m. in New York. The index has climbed 13 percent this year and 6.5 percent this month. The Dow slipped 1.66 points, or less than 0.1 percent, to 11,568.05 today, and is up 11 percent this year. The 2010 advance follows a 23 percent rise in the S&P 500 in 2009, making it the biggest two-year advance since the Internet-bubble rally of 1998 and 1999.

“This year has been like a long road trip. It wasn’t always pleasant while on the way, but it was good once we reached the destination,” said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $340 billion. “Today we have skeleton crews at investment houses and trading shops so it’s likely going to be a very light day.”

Earnings, Fed Moves

The S&P 500 advanced 23 percent from its July low through yesterday as companies reported better-than-estimated earnings and the Federal Reserve pledged to buy up to an extra $600 billion in Treasuries to stimulate the economy. Its rally to a two-year high has pushed its valuation to 15.7 times reported profits, the most since June.

This year’s increase for the benchmark index for U.S. equities means the gauge has risen for seven of the past eight years. The index’s 86 percent surge from a 12-year low on March 9, 2009, is the biggest for a comparable time period since 1955, according to Howard Silverblatt, senior index analyst at S&P.

The S&P 500’s advance sent the gauge above 1,251.70 on Dec. 21 for the first time since Sept. 12, 2008, the last trading day before Lehman Brothers Holdings Inc. filed the world’s biggest bankruptcy and prompted a 46 percent drop for the benchmark gauge through March 2009. The December rally for the benchmark index comes after it lost 0.2 percent in November and posted a combined gain of 13 percent in September and October, the biggest increase during those months since 1998.

‘Optimistic’ on 2011

“I’m quite optimistic about the performance of equity markets in the year ahead,” said Andrew Popper, chief investment officer at SG Hambros Bank Ltd. in London. “We have the conditions in place for seeing this rally continuing. The economy is recovering at a global level.”

The benchmark gauge for American equities will rise 9.2 percent from yesterday’s close of 1,257.88 to 1,374 in 2011, bringing the increase since 2008 to 52 percent, according to the average of 11 strategists in a Bloomberg News survey.

Hewlett-Packard, the world’s largest computer maker, retreated 0.9 percent to $41.89 and Microsoft fell 0.7 percent to $27.67 as technology companies led declines in the S&P 500, dropping 0.4 percent as a group.

CVS Caremark gained 0.1 percent to $35.04. The drugstore operator said it will acquire the Medicare Part D business of Universal American Financial for about $1.25 billion. Universal American surged 37 percent to $20.

Clearwire Corp., a company creating a nationwide high-speed wireless network using WiMax technology, slumped 1.3 percent to $5.15 after it said Chairman Craig McCaw will step down today.

Borders slumped 19 percent to 93 cents. The bookstore chain has suspended payments to some publishers as refinancing talks continue, the Wall Street Journal reported, citing Publishers Marketplace.

Alcoa, the largest U.S. aluminum producer, rose 1.6 percent to $15.44.

Imax Corp. rallied 11 percent to $29.79. Sony Corp. may be preparing to bid more than $40 a share for the company that designs and makes giant-screen movie theaters, the Daily Mail reported, citing London traders. Walt Disney Co. may also be interested in bidding for Imax, the newspaper said.

 - Nikolaj Gammeltoft in New York at Bloomberg.