By Avantika Chilkoti and Karen Langley
The S&P 500 and Nasdaq Composite were poised to close at
records for the first time in three months Monday, kicking off a
busy week featuring a flurry of corporate earnings, a Federal
Reserve meeting and the October jobs report.
Optimism about lower interest rates and hopes for a resolution
to the long-simmering trade dispute between the U.S. and China have
propelled stocks this year after a brutal selloff to end 2018. The
S&P 500 is up 21% in 2019 -- though most of those gains came in
the first quarter.
The broad stock-market index inched up 0.7% to 3042.32, setting
a new intraday high. The Nasdaq Composite added 1.1%, putting the
technology-heavy index on pace to close at the highest level ever.
Shares of Apple, Microsoft and Google parent Alphabet were also on
track for new highs.
The Dow Jones Industrial Average, meanwhile, gained 0.5% and is
within 1% of July's high.
Major indexes have lately been stuck in a narrow trading range
as signs of slowing global growth dented corporate investment and
spurred anxiety among investors. A better-than-feared corporate
earnings season has helped alleviate some of those worries.
"We think equities are quite attractive at current prices, given
the low-interest-rate environment," said Dev Kantesaria, portfolio
manager and founder of Valley Forge Capital Management. "We expect
over the long term -- the next three years, five years -- for the
S&P 500 to hit new highs."
Monday's gains were driven by the technology, health care and
communication services sectors, while the real estate, utilities
and consumer staples sectors lagged behind. Investors pointed to a
resurgence of cyclical stocks, which are typically tied to the
health of the U.S. economy, at the expense of co-called defensive
stocks.
"I think the market had been pricing in that we were on the
footsteps of a recession, and I think that's changed," said Michael
Mullaney, director of global markets research at Boston Partners,
who attributed the changed perspective in part to the Federal
Reserve's shift to increasing its balance sheet, adding liquidity
into financial markets.
Nearly 150 companies in the S&P 500, including General
Motors, Facebook and Apple, are on tap to report results this week,
and investors will be listening carefully for insight into how the
trade war is affecting their businesses.
Most earnings reports from big companies have beaten the low
expectations of analysts, but earnings are still on track to fall
3.8% from a year earlier, according to FactSet.
Investors are expecting the Federal Reserve on Wednesday to cut
interest rates for the third time this year as the central bank
attempts to insulate the economy against the effects of slower
growth.
U.S. factory activity in September contracted for the second
straight month and hit a 10-year low, and there have been signs
that the manufacturing slowdown is spreading to the labor market
and crimping consumer spending. Investors will be paying close
attention to Friday's monthly jobs report for fresh clues on the
health of the economy.
The yield on 10-year Treasurys rose to 1.853%, from 1.805%
Friday, ahead of the anticipate rate cut.
The dispute between the U.S. and China has disrupted the global
trade system, and stocks rallied late last week on reports that the
two countries were edging closer to completing a "phase one deal."
But investors have responded to a drip of both good and bad news on
trade, and the possibility of another round of tariffs in December
continues to fuel caution.
Fast-moving geopolitical events are holding back corporate
performance, said Esty Dwek, a strategist at Natixis Investment
Managers.
"It's a confirmation that there's a lot of uncertainty, and the
more you can remove some of this uncertainty the more you'll have
better guidance and confidence in terms of hiring and investing,"
Ms. Dwek said.
Corporate news drove swings in individual stocks Monday. Shares
of Tiffany surged 30% after LVMH Moët Hennessy Louis Vuitton
confirmed it is talks for a potential takeover that would value the
iconic jewelry brand at $14.5 billion.
Microsoft gained 2.4% and was on track for a new high after the
software company won a contract worth up to $10 billion over the
next decade from the Pentagon. AT&T added 4.5% after the
company struck a truce with an activist investor.
Shares of PG&E fell 22% amid mounting concerns about the
bankrupt electric utility's potential liability related to the
Kincade Fire burning in California.
In Europe, the pan-continental Stoxx Europe 600 index added
0.2%. HSBC Holdings shed 3.7% after the bank dropped its main
financial target and said it would speed up plans to revamp its
U.K., U.S. and European businesses.
The U.K.'s FTSE 100 gauge ticked up 0.1% as U.K. Prime Minister
Boris Johnson urged lawmakers to support his push for a Dec. 12
general election as a way to clear a path to Brexit. British
lawmakers later blocked his plan for an early election. European
Union leaders agreed to a three-month extension to the Brexit
deadline, extending the political uncertainty until Jan. 31.
Asian markets had a stronger start to the week. The Shanghai
Composite Index gained 0.9% and Hong Kong's benchmark Hang Seng
Index climbed 0.8%.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
October 28, 2019 15:57 ET (19:57 GMT)
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