Monday saw a broad-based rally send the S&P 500 and the Nasdaq equity indexes to record-high closes for the second straight session as a trade agreement reached between the United States and Mexico lifted investor sentiment.

Technology stocks led the Nasdaq above the 8,000 mark for the first time and the sector provided the largest lift to the S&P 500 index.

A senior U.S. trade official announced a deal with Mexico to replace the North American Trade Agreement and said talks with Canada were expected to begin immediately. The upbeat trade outlook was further aided by news that Washington was pressuring the European Union to accelerate tariff talks.

Disputes between the United States and its trading partners have been a drag on financial markets for much of the year despite solid economic fundamentals and two robust quarters of corporate earnings.

Optimism over the trade agreement sent Ford up 3.2 percent and General Motors up 4.8 percent.

Tariff-sensitive companies Boeing and Caterpillar were up 1.2 percent and 2.8 percent, respectively, leading the industrial sector’s advance and pulling the Dow higher.

Of the 11 major sectors of the S&P 500, nine ended the session in positive territory, with the largest percentage gains in materials, financials and industrials. Defensive utilities and real estate sectors were the only percentage losers.

Tesla fell 1.1 percent, paring earlier losses following news that Chief Executive Elon Musk was scrapping his scheme to take Tesla private.

Chipotle was the largest percentage loser in the S&P 500, down 4.8 percent after Wedbush downgraded the chain’s shares.

Tiffany ended the day’s trading session down 1.3 percent ahead of its second-quarter earnings report expected early on Tuesday.

Approximately 6.19 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.27 billion share average over the past 20 trading days.

The NAFTA Deal

The United States and Mexico agreed on Monday to a deal that keep the North American Free Trade Agreement (NAFTA) in place between Mexico and the United States, with an invitation for Canada to join if it so desires.

Here are the key issues at the heart of the negotiations:

The regional automotive content threshold for tariff-free access 75 percent from 62.5 percent, aimed at raising regional car manufacturing. It requires 40 to 45 percent of vehicles value to be made in high wage areas paying $16 an hour, requiring significant automotive production in the United States.

The pact also requires greater use of U.S. domestic steel, aluminum, glass and plastics.

Trump backed off on a demand for a “sunset” clause that would kill the pact unless it was renegotiated every five years and which businesses said would stymie long term investment in the region.

Canada and Mexico were strictly opposed to the clause. Instead, the United States and Mexico agreed to a 16-year lifespan for NAFTA, with a review every six years that can extend the pact for 16 years more, providing more business certainty.

Mexico agreed to eliminate chapter 19 dispute settlement mechanism. Canada is opposed to the elimination of the dispute settlement mechanism.

A settlement system for disputes between investors and states was scaled back, now only for expropriation, favoritism for local firms and state-dominated sectors such as oil, power and infrastructure.

Keeps tariffs on agricultural products traded between the United States and Mexico at zero and addresses agricultural biotechnology to support innovations in agriculture.

It contains enforceable labor provisions that require Mexico to adhere to International Labor Organization labor rights standards to drive Mexican wages higher.

Markets may be signaling rising recession risk: Fed study

Narrowing Gap Between Short and Long-term Interest Rates Could Signal Recession Risk

A narrowing gap between short and long-term borrowing costs could signal heightened risk of a recession, researchers at the San Francisco Federal Reserve Bank said in a study published on Monday.

The research relies on an in-depth analysis of the gap between the yield on three-month and 10-year U.S. Treasury securities, a gap that like other measures of short-to-long-term rates has narrowed in recent months.

Several Fed officials have cited this flattening yield curve as a reason to stop raising interest rates, since historically each time it inverts, with short-term rates rising above long-term rates, a recession follows.

The study, published in the San Francisco Fed’s latest Economic Letter, strengthens that view.

“In light of the evidence on its predictive power for recessions, the recent evolution of the yield curve suggests that recession risk might be rising,” wrote San Francisco Fed research advisers Michael Bauer and Thomas Mertens.

Still, they noted, “the flattening yield curve provides no sign of an impending recession” because long-term rates, though falling relative to short-term rates, remain above them.

The yield on the 10-year Treasury note on Monday was about three-quarters of a percentage point higher than the yield on the three-month note.

That is a “comfortable” distance from actual inversion, which is the true signal of a recession, they wrote.

The Fed is expected to continue raising rates for at least the next couple of quarters, though markets expect it to raise rates just once next year, while Fed officials expect to raise them three times.

Other researchers both inside and outside the Fed have cited the build-up of bonds at the Fed and other central banks since the global financial crisis as one reason to doubt the signaling power of an inverted yield curve. That is because the large bond-holdings may be pushing down long-term rates.

Similarly, investor preference for U.S. debt, seen as low-risk, may also be driving down yields on long-term Treasuries and distorting the yield curve, making it less reliable as an indicator of a coming recession.

A recent paper from researchers at the Washington-based Fed board looked at a different part of the yield curve and found little cause for concern.

The debate is likely to continue, as rarely does one study settle any matter in macroeconomics.