The major domestic equity indexes rebounded on Tuesday, due in part to gains in industrial shares following reports of renewed trade negotiations between the United States and China.
Both the S&P 500 and the Dow Jones Industrial Average posted their largest monthly percentage gains since January, when markets hit peak levels.
The markets were buoyed by a Bloomberg report that Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are exploring ways to cool down the tariff war brewing between the world’s two largest economies.
The trade-sensitive industrial sector led the S&P 500 and the Dow industrials higher, rising 2.1 percent a day after a broad sell-off in technology stocks pulled markets lower.
Apple shares were up over 2 percent in aftermarket trading after posting results that topped Wall Street expectations, driven by sales of higher-priced iPhones. Meanwhile, the company is closing in on $1 trillion in market value.
The Fed is meeting this week and is expected to leave interest rates unchanged, but robust economic data and rising inflation will likely keep it on track for two more rate hikes this year.
A report from the Commerce Department showed a 1.9 percent increase in the core PCE price index, hewing closely to the Fed’s 2 percent inflation target.
The second-quarter reporting season remains in full swing, and analysts now expect second-quarter earnings for S&P 500 companies to have increased 22.9 percent from last year, up from the 20.7 increase seen on July 1. Eight of the 11 major sectors of the S&P 500 ended the session in positive territory.
Healthcare stocks were a stimulus to all three major domestic equity indexes, with the S&P health sector up 1.0 percent.
Pfizer exceeded second-quarter estimates but lowered its full-year revenue forecast. The stock ended the trading day up 3.5 percent.
CBS reversed its slide, rising 2.7 percent after Les Moonves survived as the company’s chief executive following the board’s decision to select an outside counsel to investigate claims of sexual harassment.
Chipotle fell 6.8 percent after reports of customers becoming ill prompted the closing of an Ohio restaurant.
Approximately 7.26 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.06 billion-share average over the past 20 trading days.
Day’s Economic News
Consumer spending increased during June as households spent more at restaurants and on accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately.
Meanwhile, employers raised benefits for workers in the second quarter, although wage growth slowed somewhat. With savings at lofty levels and lower taxes increasing take-home pay for some workers, consumer spending is likely to remain strong this year and allow the Federal Reserve to continue gradually raising interest rates.
The Commerce Department reported that consumer spending, which accounts for more than two-thirds of the economy, rose 0.4 percent last month. Data for May was revised upward to indicate consumer spending advancing at a 0.5 percent rate instead of the previously reported 0.2 percent increase.
Last month’s increase in consumer spending was in line with consensus. The data was included in last Friday’s second-quarter gross domestic product report, which disclosed consumer spending accelerating at a 4.0 percent annualized rate during that period after a pedestrian 0.5 percent pace in the first quarter.
The economy grew at a 4.1 percent rate in the second quarter, almost double the January-March period’s 2.2 percent pace and the strongest performance in nearly four years. June’s increase in consumer spending sets it on a higher growth path heading into the third quarter.
Consumer spending last month was aided by spending at restaurants and on accommodation. Spending on goods was unchanged after rising 0.9 percent in May. Spending on services accelerated 0.6 percent after rising 0.3 percent in May.
Prices also continued to steadily rise last month. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components gained 0.1 percent in June. It was up 0.2 percent in the prior month.
That kept the year-on-year increase in the so-called core PCE price index at 1.9 percent for a third straight month.
The core PCE index, which is the Fed’s preferred inflation measure, hit the U.S. central bank’s 2 percent inflation target in March for the first time since December 2011. The Fed is expected leave interest rates unchanged on Wednesday after increasing borrowing costs in June for the second time this year. It has forecast two more rate hikes by December.
Spending in June was supported by a 0.4 percent increase in personal income, which matched May’s increase. Savings edged up to $1.050 trillion last month from $1.047 trillion in May.
In a separate report on Tuesday, the Labor Department said its Employment Cost Index, the broadest measure of labor costs, rose 0.6 percent after an unrevised 0.8 percent advance in the first quarter. That pushed the annual increase in the ECI to 2.8 percent, the biggest gain since September 2008. The ECI rose 2.7 percent year-on-year in the first quarter.
Wages and salaries, which account for 70 percent of employment costs, rose 0.5 percent in the second quarter, retreating from a 0.9 percent surge in first three months of the year. Wages and salaries were up 2.8 percent in the 12 months through June, also the largest annual gain since September 2008.
Private sector wages and salaries rose 0.6 percent in the second quarter after jumping 1.0 percent in the January-March period.
Look for a significant acceleration in wage growth in the second half of the year, due in large part to a tightening labor market. The labor market is near or at full employment, with a 4 percent jobless rate.
Benefits for all workers increased 0.9 percent in the April-June quarter, the biggest gain in four years, after rising 0.7 percent in the first quarter. They were up 2.9 percent in the 12 months through June, the largest increase since December 2011, after rising 2.6 percent in the year to March.