December 12, 2019 / 4:20 PM / 2 months ago

Wall Street hits records on hopes tariffs will be dropped

(Reuters) - U.S. stock indexes jumped to new highs on Thursday, and Treasury yields rose, on a tweet from President Donald Trump that a trade deal with China was “very close” and a report that U.S. trade negotiators had offered to cancel a fresh round of tariffs on Chinese goods.

FILE PHOTO: The New York Stock Exchange is pictured in the Manhattan borough of New York, September 21, 2015. REUTERS/Carlo Allegri/File Photo

The S&P 500 .SPX, Dow Jones Industrials .DJI and the Nasdaq .IXIC opened lower then reversed after Trump's statement, which comes just before tariffs are due to go into effect on Sunday. The indexes had slipped from record levels two weeks ago.

The Wall Street Journal reported U.S. negotiators have offered to slash existing tariffs by as much as half on roughly $360 billion of Chinese-made goods, supporting the bounce.

MARKETS:

** The S&P 500 briefly rose more than one percent to hit a record intraday high of 3,176.28 and was last up 0.5%.

** MSCI’s all-country world index .MIWD00000PUS, tracking shares in 49 countries climbed to 551.84 points to surpass the previous record of 550.63 points set in Jan 2018.

** The yield on the U.S. 10-year Treasury note US10YT=RR rose to a four-week high and was last at 1.8817%.

** The U.S. dollar index .DXY was up about 0.3%.

COMMENTS:

ROBERT PHIPPS, DIRECTOR, PER STIRLING CAPITAL MANAGEMENT, AUSTIN, TEXAS

“It’s very telling that financials and very cyclical stocks, rather than growth stocks, are leading most of this rally. If you do roll back tariffs, it does lessen the drag on the global economy, which I think will allow value stocks to finally start outperforming growth stocks.”

“We’re backing off the highs of the day just on the recognition that Trump has been crying wolf for 18 months now. The market has been doing something unusual in that it keeps rallying on the same news time after time, which is not what markets historically do. The algos took us up, and human beings stepped in, saying, ‘This is not new news.’”

“A Dec. 15 trade deal is already priced into the market. The real risk is that people will take profits whether a trade deal happens or not. With end of year window-dressing, any weakness is likely to be bought by professional portfolio managers. But we could see a 7 to 10% decline if tariffs are implemented.”

SUBADRA RAJAPPA, HEAD OF U.S. RATES STRATEGY, SOCIETE GENERALE, NEW YORK

“The sell-off in bonds is all based on the trade news. But it’s all binary outcomes — when we get positive news, bonds  sell off and on days that we don’t get positive news, we see a bond rally. But what is interesting is that we’re not really breaking out of any ranges in Treasuries. We have stayed broadly between 1.75% to 2% in the 10-year, without any meaningful catalyst for a rise beyond 2%. I will be looking to see where this goes. We’re at new  highs in equities and I just don’t know how much momentum is left in equities that’s going to support bond yields.”

WILLIE DELWICHE, INVESTMENT STRATEGIST, BAIRD, MILWAUKEE, WISCONSIN

“I don’t think many people expect a definite conclusion to what’s happening between the U.S. and China. But if we can reach some status quo and if things aren’t continuing to deteriorate, maybe that can be taken as a positive. I would say the view today, what Trump is saying and what China is responding, would suggest that maybe we are more at a status quo level of a detente than we are at further deterioration in relationships between the U.S. and China.”

“I think the implication from today would be they are certainly going to delay the tariffs that are supposed to go on this weekend.”

“Whether its a one-day event for the market or a basis for something to build on, that remains to be seen. But certainly the news of some progress between the U.S. and China, I think that’s good news for stocks and good news for the global economy.”

“There has been some evidence that things globally are maybe getting a little bit better, and I think this adds fuel there.”

BURNS MCKINNEY, PORTFOLIO MANAGER, ALLIANZ GLOBAL INVESTORS, DALLAS

“The reason things have rebounded is the President’s comment that the U.S. is close to a deal. ... Until we actually have something firm I’m skeptical.”

“The Fed meeting, the UK election and the ECB meeting are potential speed bumps. The Dec. 15 deadline is not a speed bump. That’s a great big pot hole.”

“It’s extremely important the new tariffs don’t go into place. For the last several months there’s been a lot of noise on trade. This is not noise. This is the real thing, an important deadline.”

“All the trade escalation thus far has left the U.S. consumer largely insulated .... They’ve slowed down industrial investment. The U.S. consumer is the one pillar that’s been holding up the economy and the Dec. 15 tariffs are the ones that finally dig in where it hurts.”

“If you put these (tariffs) in place I worry it’s a chance it’s the crucial block in the Yenga tower. Sometimes there’s that one block that sends the tower crashing. It would certainly be negative for the economy.”

JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM, NEW JERSEY

“The market is definitely pricing in a trade deal, no question about it. You’ll probably get a ‘sell the news,’ since it’s already priced in. If there is no deal, that will be a big problem on Monday.”

“Even though it feels like we keep going up, up, up, a year ago we had a disaster in December. We got crushed. So when you look over a longer time period, it seems like a nice, steady path up to me.”

“We’re certainly on the upper end of a fair valuation. But if we get a good deal and take geopolitical risk out, why can’t we go higher?”

ART HOGAN, CHIEF MARKET STRATEGIST AT NATIONAL SECURITIES IN NEW YORK

“What this market has been trying to tell us is that we want to continue to work towards a deal. (From) October coming into last week was very much that ‘hey we are working on phase one’ so that is constructive. And constructive means that if we actually get a phase one deal done there is likely to be no further escalation from that point. That is the beginning of the end and the market sees that as returning some certainty to the economies and certainly to corporations. The big delta here has been that there is consumer confidence and a lack of corporate confidence and that is holding back corporate spending.”

“The market is saying we can remain constructive as long as you are working towards a deal. Escalation means bad things for both the market and the economy. That is what the market is telling us today.”

(This story in paragraph 20 corrects spelling to Jenga, not Yenga, applies to earlier versions of the story).

Compiled by Alden Bentley

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