Dow rises 200 points on US-China trade hopes as Wall Street closes out tumultuous year

Stocks traded higher on Monday on growing optimism surrounding U.S.-China trade talks as investors sought to end a volatile year.

The Dow Jones Industrial Average rose 227 points, led by gains in Boeing and Pfizer. The S&P 500 gained 0.7 percent as the consumer discretionary and health care sectors outperformed. The Nasdaq Composite also rose 0.7 percent as shares of Apple climbed 0.8 percent.

Over the weekend, President Donald Trump said he had a “very good call” with Chinese President Xi Jinping to discuss trade. The president also claimed that “big progress” was being made on this front. Trump’s statements sparked gains in markets worldwide.

However, The Wall Street Journal reported that Trump may be overstating how much progress was being made. The report cited people familiar with the situation. China and the U.S. agreed earlier this month to a 90-day grace period to try and work out their differences on trade.

“The threat of an escalating trade war has chilled US business confidence, with managers uncertain as to if/how they should restructure global supply chains,” Nicholas Colas, co-founder of DataTrek Research, wrote in a note to clients.

“The most bullish case here is that the tariff issue will be settled in Q1 2019, and a meaningful resolution should be enough to trigger a first half rally for stocks,” Colas added. “Against that optimistic take are two bearish outcomes: one, that these negotiations take longer and two, that they fail outright.”

Despite Monday’s gains, the major stock averages were on pace to post solid losses for the year. The Dow, S&P 500 and Nasdaq were all down at least 4.8 percent year to date through Friday’s close. That would mark their worst annual performance since 2008.

A sizable chunk of those losses came in December. The indexes are all down at least 9.5 percent for the month. The Dow and S&P 500 were also on track to record their worst December performance since 1931.

Investors dumped stocks this month amid concerns of an economic slowdown and fears the Federal Reserve might be making a monetary policy mistake.

But John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, said these declines are “setting the stage for upward surprises in 2019.”

“With what we believe to be almost all but the kitchen sink priced into current valuations, we see opportunity for multiples to return to levels seen at the end of the third quarter … with multiple expansions resulting in a global equity rebound in the coming year,” Stoltzfus wrote in a note.

“That said, we do not expect a rally of great significance to emerge until sometime into the first quarter of 2019. We look for market risk to weigh on investor sentiment into the new year until catalysts for a rally of some material significance appear on the scene,” he added.

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