Wall Street rallied on Friday, with the Dow Jones Industrial Average and the Nasdaq chalking up their eighth consecutive week of gains, due in no small part to the hope that the United States and China would agree on resolving their protracted trade war.

All three major equity indexes ended the Friday’s trading session higher, and for the fourth straight session, the S&P 500 held above its 200-day moving average, a key technical level.

Talks between the United States and China will resume in Washington next week, with both sides saying progress has been made toward resolving the two countries’ contentious trade dispute.

Tariff-vulnerable industrials provided the biggest lift to the Dow, led by Boeing, 3M, United Technologies and Caterpillar.

The trade row’s effects became evident in Deer’s earnings report, which came in below consensus estimates, in part because of slowing international trade. The agricultural equipment manufacturer’s shares fell 2.1 percent.

With nearly 80 percent of S&P 500 companies now having reported, fourth-quarter earnings season is largely in the rearview mirror. The result appears to be a profit increase of 16.2 percent for the quarter, according to Refinitiv data.

Going forward, however, the outlook continues to worsen. First quarter earnings are currently seen falling by 0.5 percent, the first year-on-year decline since mid-2016.

All 11 major sectors in the S&P 500 ended the session in the black. The rate-sensitive financial sector led the S&P 500’s advance, regaining ground from Thursday’s sell-off as Treasury yields crept back up.

Shares of Pepsi were up 3.1 percent even after the snack and beverage company forecast a surprise decline in full-year earnings.

Nvidia rose 1.8 percent following the company’s forecasts for its current fiscal year that exceeded Street consensus.

The chipmaker gave the second-largest boost to the closely-watched Philadelphia SE Semiconductor index, which was up 0.5 percent. The index has jumped nearly 18 percent so far this year.

Amazon fell 0.9 percent after scrapping its plans for a New York headquarters. And each of Amazon’s fellow FAANG members, a group of momentum stocks which also includes Facebook, Apple, Netflix and Alphabet, also ended the session in the red.

Approximately 7.07 billion shares changed hands on the major domestic equity exchanges on Friday, as compared to the 7.43 billion share average over the past 20 trading days.

Manufacturing Output Drops

Manufacturing output posted its steepest fall in eight months in January, the result of declines in a broad range of goods. The unwanted result could be increased fears of a sharp slowdown in factory activity.

The Federal Reserve reported on Friday that manufacturing production fell 0.9 percent last month. Data for December was revised to show a smaller increase in output that month.

Total industrial output – which includes factories, mining operations and utilities – was down 0.6 percent during the month. It was the first decline since May 2018.

Within the factory sector, production of motor vehicles and parts dropped 8.8 percent in January, while output also fell for machinery, chemicals, electronics and aerospace equipment.

Recession Possibility Rises

The earnings outlook for Wall Street has deteriorated significantly in recent months, raising the probability that the corporate world may slip into recession before the economy does, with Europe close behind.

The consensus is for first quarter earnings by corporations making up the S&P 500 index to drop 0.3 percent year-on-year, according to I/B/E/S Refinitiv data.

That is a significant decline from the 8.2 percent rise expected as recently as October and would mark the first contraction of corporate earnings in three years. Forecasts for the remaining portion of the year are also seeing substantial reductions.

At the same time, some growth is expected in the remaining three quarters, meaning an avoidance of a technical recession, defined as a decline in two consecutive quarters. But only just, as the lowered growth forecasts are meager.

The swift pace and size of the cuts have raised concerns that the downward trend will continue, particularly as companies struggle with squeezed margins and large amounts of debt.

The full-year estimate stands at just 4.2 percent now, down more than half from 10.2 percent in October.

Import Prices Help Keep Inflation in Check

Import prices fell for a third straight month in January, leading to the largest annual decline in nearly 2-1/2 years. This in turn helped to tame any upward pressures on inflation.

The Labor Department reported on Friday that import prices decreased 0.5 percent last month as the cost of petroleum products fell and a strong dollar weighed on prices of motor vehicles and consumer goods. Import prices declined by an unrevised 1.0 percent in December.

Import prices fell 3.1 percent over the last three months, the largest three-month decrease since July-October 2015. 

In the 12 months through January, import prices were down 1.7 percent. That was the largest annual decline since August 2016 and followed a 0.5 percent decline in December.

Data this week showed consumer prices unchanged in January for a third straight month and producer prices falling for a second consecutive month. The inflation reports support the Federal Reserve’s recent description of price pressures as being “muted.”

Last month, prices for imported fuels and lubricants fell 3.2 percent after falling 8.6 percent in December. Prices for imported petroleum were down 0.1 percent after falling 10.7 percent in December.

Imported food prices dropped 0.3 percent in January after edging up 0.1 percent in the prior month. Excluding fuels and food, import prices fell 0.2 percent last month after being unchanged in December. The so-called core import prices were flat in the 12 months through January.

Core import price readings are likely being held down by the strong dollar, which gained about 7.5 percent last year against the currencies of the United States’ main trade partners.

The cost of goods imported from China fell 0.3 percent in January, the largest decline since September 2017, after edging down 0.1 percent in each of the prior two months.

The report also showed export prices fell 0.6 percent in January, declining for a third straight month. Export prices fell 0.2 percent on a year-on-year basis in January after rising 1.1 percent in December.