By Clive McKeef
The Dow Jones Industrial Average and benchmark S&P500 index both closed at new records Wednesday, helped by a jump in Disney’s stock price, as a five week rally rolled on.
Factors supporting the rally include the prospect of a U.S. - China trade deal, the move by the Federal Reserve to cut interest rates three times this year and resume buying short dated debt to add liquidity to money markets, and a surge in government spending as the federal budget deficit rises toward $1 trillion.
How are major indexes trading?
The Dow Jones Industrial Average rose 92.10 points, or 0.33%, at 27,783.59. The S&P 500 edged up 2.20 points or 0.07%, to 3,094.04, but the Nasdaq slipped 3.99 points or 0.05%, to 8,482.10.
For the year to date the Dow is up 19.10% while the S&P500 is up 23.42%.
On Tuesday the Dow (DOW:DJIA) ended unchanged at 27,691.49. The S&P 500 (S&P:SPX) rose 4.83 points, or 0.2%, to end at 3,091.84, while the Nasdaq Composite (AMERICAN:COMP) rose 21.81 points to end at 8,486.09, up 0.3%.
What’s driving the market?
The prospect of a U.S. - China trade deal remains the main factor sustaining a rally that has pushed U.S. stocks record highs in the past five weeks.
But trade talks may have hit a snag over farm purchases, the Wall Street Journal reported Wednesday afternoon. President Trump earlier said China had agreed to buy up to $50 billion in U.S. soybeans, pork and other agricultural products annually, but China is reluctant to put a numerical commitment in the text of a potential agreement, sources said.
The dispute over farm purchases is one of several issues that have delayed completion of the limited trade accord announced by Trump and Chinese Vice Premier Liu He on Oct. 11. Both sides are also at odds over when and by how much the U.S. would agree to lift tariffs on Chinese imports.
Chinese officials have also resisted U.S. demands for a strong enforcement mechanism for the deal and curbs on the forced transfer of technology for companies seeking to do business in China.
In a Tuesday speech at the Economic Club of New York, Trump said a “significant phase one” deal could happen soon, but only if the deal worked to the advantage of U.S. workers and businesses.
“Overall, the calm in the trade war and the broader risk-on sentiment of recent weeks may be more fragile than they appear, and with markets having gone on a euphoria rally lately, it might not take much bad news to trigger a notable correction,” Marios Hadjikyriacos, investment analyst at XM, in wrote.
Meanwhile, Federal Reserve chairman Jerome Powell testified before the Joint Economic Committee of Congress Wednesday, the first of two congressional appearances this week. Interest rates are on hold unless there is a material deterioration in the economy, Powell said in published remarks.
“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective,” Powell said.
Powell’s testimony “suggests that the bar to raise rates is higher than to lower them, even if easier policy is no longer the default option,” said Sal Guatieri, BMO Capital Markets senior economist.
In U.S. economic data, the U.S. federal government’s budget deficit in October rose 34% from a year earlier to $134.5 billion, putting the U.S. on course to top the $1 trillion mark in fiscal 2020 for the first time in eight years, or nearly 5% of gross domestic product.
In other data, U.S. inflation was slightly higher than expected in October. The consumer price index was up 0.4% during the month, as Americans paid higher prices for gasoline, medical treatment and recreation in October, but overall, inflation remained stable. For the year the cost of living rose 1.8%.
<STRONG>Stocks to Watch</STRONG>
Disney (NYS:DIS) shares led the Dow up, gaining 7% after the media giant said its Disney+ streaming service had more than 10 million sign-ups already.
Shares of Canada Goose (NYS:GOOS) surged after beating earnings but then sank on a poor outlook.
Nike (NYS:NKE) will stop selling sneakers and apparel directly on Amazon.com Inc., (NAS:AMZN) the sportswear giant said.
Newspaper publisher McClatchy Co. (ASE:MNI) saw shares tumble more than 15% after a third-quarter loss and comments about a “liquidity challenge.”
An earnings report is expected after the bell Wednesday from tech heavyweight Cisco (NAS:CSCO) .
What are other markets doing?
Gold prices posted the first gain in five sessions on Wednesday, with uncertainty over the outlook for a U.S.-China trade deal and the first day of public impeachment proceedings against President Donald Trump helping to support haven demand for the precious metal. Gold for December delivery on Comex rose $9.60, or 0.7%, to settle at $1,463.30 an ounce,
Oil futures ended higher on Wednesday, with prices recouping most of the losses they suffered over the past two trading sessions. West Texas Intermediate crude for December delivery tacked on 32 cents, or 0.6%, to settle at $57.12 a barrel on the New York Mercantile Exchange.
The 10-year Treasury yield fell 4 basis points, the most in more than a week, with the 10-year U.S. Treasury note (XTUP:BX:TMUBMUSD10Y) trading around 1.87%.
In Europe, the Stoxx Europe 600 (STOXX:XX:SXXP) fell 0.3%.