Hope for an expedient resolution to the trade war between the United States and China sent shares on Wall Street higher, while at the same time raising investor sentiment. As a result, all the major equity indexes closed out the trading day in positive territory.
Aiding the gains was a Wall Street Journal article indicating that Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and suggested offering a tariff rollback during trade discussions scheduled for Jan. 30.
S&P 500 industrial stock index, which has been sensitive to trade developments, rose 1.7 percent. The gains held even despite a Treasury spokesman stating that Mnuchin had not made any such recommendation.
Earlier, industrial stocks were higher as shares of defense contractors rose after Trump unveiled a new missile defense strategy. Shares of Northrop Grumman advanced 3.3 percent, and shares of Lockheed Martin gained 2.4 percent.
With Thursday’s gains, the benchmark S&P 500 index closed above its 50-day moving average for the first time since Dec. 3. The S&P 500 is 10.1 percent away from its Sept. 20 record close after having rallied from a 20-month low on Christmas Eve on concerns over a global economic slowdown.
Also helping the equity markets was a rebound in financial shares, which ended 0.5 percent higher after having dropped as much as 1 percent. The financial index has posted gains for seven straight sessions.
However, shares of Morgan Stanley closed down 4.4 percent after the ibank reported a lower-than-expected earnings number.
In after-hours trading, shares of Netflix fell 2 percent after the company reported quarterly results.
Analysts have cut their fourth-quarter profit growth forecast for S&P 500 companies to 14.2 percent from 20.1 percent estimated on Oct. 1, according to IBES data from Refinitiv.
Approximately 7.19 billion shares changed hands on the major domestic equity exchanges, as compared to the 8.58 billion share average over the past 20 trading days.
Day’s Economic News
The number of new claims for jobless benefits fell unexpectedly last week, pointing to sustained labor market strength that should continue to underpin the economy.
Other data on Thursday showed factory activity in the mid-Atlantic region rebounded in January from near a 2-1/2-year low, driven by a surge in new orders, which could allay concerns that manufacturing production was slowing sharply.
While the data so far suggest the economy is in relatively good shape, there are concerns an ongoing partial shutdown of the federal government could erode both business and consumer confidence, leading to cuts in spending.
According to the report released by the Labor Department on Thursday morning, initial claims for state unemployment benefits decreased by 3,000 claims to a seasonally adjusted 213,000 claims for the week ended January 12.
The claims data covered the survey period for the nonfarm payrolls portion of January’s employment report.
Claims fell 4,000 between the December and January survey periods. While that would suggest little change in labor market conditions after the economy created 312,000 jobs in December, the longest government shutdown in U.S. history raises the risk of a drop-in payrolls. Some 800,000 government workers missed their first paycheck last Friday because of the partial shutdown.
The pay period for most federal employees that includes the week of Jan. 12 runs from Jan. 6 to Jan. 19. About 380,000 workers have been furloughed, while the rest are working without pay. Furloughed workers will probably be counted as unemployed.
Private contractors working for many government agencies are also without pay. But Trump has signed legislation for all employees to be paid their salaries retroactively when the shutdown ends. That could result in the shutdown having minimal impact on January payrolls.
Publication of economic data compiled by the Commerce Department’s Bureau of Economic Analysis and Census Bureau has been suspended during the shutdown. That includes December’s housing starts and building permits report, which was scheduled for release on Thursday. November’s construction, factory orders and trade figures have also been delayed, as well as December retail sales and November business inventories data.
The incomplete data is making it hard to get a clear read on the economy, which could complicate policy decisions.
The Federal Reserve reported on Wednesday in its Beige Book report, which offers a snapshot of the economy, that eight of the Fed’s 12 districts reported “modest to moderate growth” in late December and early January.
The Fed noted that while outlooks generally remained positive, “many districts reported that contacts had become less optimistic.”
That was corroborated by a separate report on Thursday from the Philadelphia Fed showing its business conditions index increased to a reading of 17.0 in January from 9.1 in December, which was its lowest level since August 2016.
The survey’s six-month business conditions index increased to a reading of 31.2 this month from 29.9 in December. But its six-month capital expenditures index slipped to a reading of 31.6 in January from 34.5 in the prior month.
Despite the modest rebound in manufacturing in the region that covers eastern Pennsylvania, southern New Jersey and Delaware, the level of activity is lower than it was for most of 2017 and 2018.
This fits in with other signs that national factory activity is slowing, having hit a two-year low in December. A report from the New York Fed earlier this week showed a second straight monthly drop in its Empire State manufacturing index in January.