Growth in factory activity and retail sales both beat economists’ expectations for last month. That layered on top of optimism from last week’s long-awaited “Phase 1” trade deal between China and the United States, which removed some of the uncertainty that’s hung over businesses and investors.
The interim trade deal is one of a “trifecta of positive catalysts” that swept through the market last week and could help support it through the end of the year, Morgan Stanley strategists wrote in a research note. The others are a Federal Reserve that appears committed to keeping interest rates low and the potential for an orderly exit by the United Kingdom from the European Union following last week’s U.K. elections.
Monday’s rally was broad, with more than 90% of the stocks in the S&P 500 rising. Financial stocks helped lead the way on expectations that a healthier economy and higher interest rates will boost their profits. Technology stocks, which have often swung with every shift in the U.S.-China trade war, were also at the head of the pack.
KEEPING SCORE: The S&P 500 was up 0.7% as of 10 a.m. Eastern time. It’s on pace for its fourth straight gain. The Dow Jones Industrial Average rose 172 points, or 0.6%, to 28,307, and the Nasdaq composite was up 0.9%.
CHINA STRENGTH: China’s industrial production rose 6.2% from a year earlier, up from the previous month’s 4.7%. Retail sales growth rose to a five-month high of 8% from October’s 7.2%. The interim “Phase 1” trade agreement announced Friday was relatively modest but in line with the investors’ expectations. The world's two largest economies averted tariff hikes planned for Sunday on imports from both sides, and the impact on economic growth will be limited, according to Citigroup economists.
“With some trade uncertainty removed last week, investors should start feeling more confident that China will be able to keep their economy growing at 6% or better in 2020,” said Edward Moya, economist with Oanda.
YIELD EFFECT: Treasury yields rallied. The 10-year yield rose to 1.86% from 1.82% late Friday. Higher rates can mean bigger profits for banks making loans and more interest income for insurers, brokerages and other financial companies. Bank of America rose 1.4%, Wells Fargo gained 1.3% and JPMorgan Chase added 1%. Financial stocks in the S&P 500 overall gained 0.8%.
Stocks that pay big dividends, meanwhile, were lagging the market because higher interest payments for bonds and other investments can lure some income-seeking investors away. Real-estate investment trusts slipped 0.3%, the only sector among the 11 that make up the S&P 500 to fall. Utility stocks, which are also big dividend payers, rose 0.2%, less than a third of the overall market's rise.
TOP RETURNS: Energy stocks were some of the best performers, rising 1.3%, after the price of oil added a bit to its gain last week. Natural gas also jumped. Oil and gas producer EOG Resources climbed 2.7%, while Exxon Mobil added 1.1%.
Technology stocks were also strong. Micron Technology jumped 3.9% and Advanced Micro Devices rose 3.4%. Tech stocks have swung often in recent months with every hint of progress on the U.S.-China trade war because of how much business the companies do in China.
MARKETS ABROAD: European markets were broadly higher, and France's CAC 40 was up 1.2%, while Germany's DAC returned 0.8%. The FTSE 100 in London jumped 2.4%. Asian markets were mixed. Stocks in Shanghai gained 0.6%, but Japan's Nikkei 225 slipped 0.3% and the Kospi in Seoul dipped 0.1%.
AP Business Writer Joe McDonald contributed.