Dow hits record high, rises more than 100 points amid U.S.-China trade optimism

The Dow Jones Industrial Average reached a milestone on Monday as investor sentiment was lifted by optimism around a potential U.S.-China trade deal.

The 30-stock index rose 128 points, or 0.5% to hit its first all-time high since mid-July. Goldman Sachs contributed the most to the gains, rising 1.1%. Trade bellwethers Boeing and Caterpillar also traded higher. 

Apple is by far the best-performing Dow stock since the index hit its previous record, rallying more than 25%. Intel, J.P. Morgan Chase and United Technologies are all up at least 10% in that time.  

Meanwhile, the S&P 500 and Nasdaq Composite climbed 0.5% and 0.7%, respectively, to fresh record highs on Monday.

“The market rally is now broadening out, meaning it’s not just confined to tech and we’ll likely go a little bit higher,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “It’s based on a lot of enthusiasm that continues to build around trade.”

U.S. Commerce Secretary Wilbur Ross said Sunday that American firms would be granted licenses to sell to Chinese telecom giant Huawei “very shortly.” Ross’ comments came after China said Friday it reached a consensus with the U.S. in principle following trade talks last week.

China and the U.S. have been engaged in a trade war for more than a year, but expectations for a deal being signed have increased recently. Last month, President Donald Trump said both sides had come to a “very substantial phase one” trade agreement that is expected to be signed later in November.

GP: Chinese Vice Premier Liu He Visits U.S. For Trade Talks
Liu He, China’s vice premier, right stands with Robert Lighthizer, U.S. trade representative, while arriving for a meeting at the Office of the U.S. Trade Representative in Washington, D.C., U.S., on Thursday, Oct. 10, 2019.
Andrew Harrer | Bloomberg | Getty Images

The move to record highs also follows the third rate cut by the Federal Reserve this year. The Fed also signaled it will not raise rates for the foreseeable future. However, the U.S. central bank also raised the bar for further rate cuts moving forward.

A strong U.S. jobs report out Friday also supported risk appetite for stocks. The U.S. economy added 128,000 jobs in October, the Labor Department said Friday.

“We stay constructive, looking for new highs before the next US recession strikes,” Mislav Matejka, head of global and European equity strategy at J.P. Morgan, wrote in a note.

“Historically, recessions have tended to follow the trough in the unemployment rate by a year on average,” Matejka wrote. “In other words, one needs to see the unemployment rate rising for a while to believe in a sustained slowdown.”

Meanwhile, the corporate earnings season has largely been better than expected. Seventy-five percent of the 360 S&P 500 companies that have reported have surpassed analyst expectations, FactSet data shows.

Under Armour posted Monday quarterly numbers that topped analyst expectations. However, the stock fell more than 15% after the company cut its 2019 revenue forecast, citing lower inventories and problems around its direct-to-consumer channels. Under Armour also disclosed a federal probe into its accounting practices. 

Uber Technologies and Shake Shack are among the companies set to report after the close Monday.

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