U.S. stock-index gauges traded solidly higher Monday morning, with the Dow industrials retaking a psychologically significant level at 26,000 for the first time since early February and the Nasdaq touching 8,000, amid enthusiasm over a possible trade deal between the U.S. and Mexico.
However, traders warned that Monday’s moves were characterized by seasonally thin volumes, which can lead to exaggerated price swings.
What are the main benchmarks doing?The Dow Jones Industrial Average DJIA, +0.87% rose 226 points, or 0.9%, to 26,013. The S&P 500 index SPX, +0.68% gained 22 points to 2,896, a gain of 0.8%, extending its climb above its all-time high, which was hit on Friday for the first time since Jan. 26. The Nasdaq Composite Index COMP, +0.95% rallied by 74 points to 8,019, a gain of 0.9%.
On Friday, both the S&P and the Nasdaq closed at records, marking the first for the S&P since late January. The Dow ended at its highest level since early February on Friday, but it remains about 3% below its own all-time high. Last week, U.S. stocks officially entered their longest bull market in history, by one measure.
Thus far in August, a historically volatile month for stocks, the Dow is up 1.5%, the S&P is up 2.1%, and the Nasdaq has gained 3.6%. Both the S&P and the Nasdaq are poised for their fifth straight monthly gain.
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What factors are driving trading?In a potentially positive development on the trade front, The Wall Street Journal reported that the U.S. and Mexico were close to reaching an agreement on key issues holding back a renegotiation of the North American Free Trade Agreement. Trump tweeted, “A big deal looking good with Mexico!” and reports indicated that he may be set to hold a news meeting on trade at 11 a.m. Eastern.
The Trump administration has levied a number of tariffs and other protectionist measures against a number of key U.S. trading partners, including the European Union and China. Many investors fear the prospect of relations escalating in to a full-on trade war, and see a resolution of the tensions as the market’s biggest potential upside catalyst.
Monday’s move to fresh records also come after comments from Federal Reserve Chairman Jerome Powell, who affirmed that the U.S. central bank would continue its strategy of gradually normalizing its monetary policy. The policy is seen as a sign that the economy is strong enough to withstand rising interest rates. At the same time, the policy isn’t so aggressive that it indicates the economy is in danger of overheating.
The sense that the economy remains on a solid footing has allowed Wall Street to shrug off all kinds of headwinds and negative headlines, including uncertainty over trade policy, signs of weakness in the housing market, the difficulties in Turkey’s economy, and the legal issues surrounding President Donald Trump.
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On the economic data front, a measure of the U.S. economy from the Chicago Federal Reserve slowed in July from June’s robust performance, owed in large part to lighter output at the nation’s factories. The Chicago Fed’s index of national economic activity registered at a positive 0.13 last month, down from an upwardly revised positive 0.48 in June.
August is considered one of the quieter months of the year for Wall Street, and recently trading volumes have been light while daily moves have been muted. In the absence of earnings news or data, that will likely continue to be the case, with sentiment driven by headlines as much as fundamental news.
What are market analysts saying?“Obviously, it’s about Nafta and it’s about trade,” said Kent Engelke, chief economic strategist at Capitol Securities Management, referring to Monday’s rally. Engelke said he was “extremely optimistic about the [domestic] economy, but neutral about the indexes.” That means he expects coming to moves to lend themselves to an environment in which stock pickers, rather than indexes, outperform.
“This coming week is the second-most-vacationed week of the year in the New York area (behind Christmas week), so we expect generally quiet markets (though upside momentum may well carry them higher into month’s end on Friday),” said Rick Bensignor, president of Bensignor Strategies.
Bill Stone, chief investment officer at Stone Investment Partners, said “the data release calendar remains fairly sparse, so headlines are likely to be dominated by geopolitical and domestic political issues.”
Stone said: “markets will continue to watch for additional trade news between the U.S. and China. Reports indicate that a bilateral Nafta trade deal with Mexico is making progress. A deal with Mexico should be seen as a positive and likely helps progress with Canada as well.
What stocks are in focus?Tesla Inc. TSLA, -3.32% shares slipped 0.4% after Chief Executive Officer Elon Musk late Friday said the electric-car maker would remain a public company. According to The Wall Street Journal, Musk was nagged by lingering doubts and unexpected difficulties for his plan to take Tesla private, a plan he unexpectedly announced over Twitter. The stock is up 3.7% thus far this year, with the going-private announcement a catalyst for recent gains. It is up nearly 16% over the past three months.
Read: Tesla stock drops after Musk axes go-private plan, but Baird analyst sees a silver lining
Plus: China’s Tesla is going public: 5 things to know about the Nio IPO
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