By Callum Keown
U.S. stocks climbed to record highs on Friday on rising hopes of a trade agreement between the U.S. and China. The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.78% closed above 28,000 for the first time ever, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.59% index hit its fourth consecutive record close.
Negotiators on both sides have ensured the positivity continued over the weekend and reports suggest the U.S. will extend a license for companies to keep doing business with Huawei, the telecoms equipment company. Dow futures /zigman2/quotes/210407078/delayed YM00 +0.30% edged lower on Monday on reports the mood in Beijing has turned pessimistic .
The bullish sentiment could be here to stay, according to research house MKM Partners, in our call of the day.
Chief market technician JC O’Hara said that despite continued highs, market conditions were still conducive for equity exposure.
“The melt-up continues. While the market has entered ‘overbought’ territory, we are not seeing any intensity from bears at this moment. While an overbought pullback is always a possibility, we continue to like the intermediate-term prospects for equities,” he said.
Sentiment and exposures had improved but were not extreme, he said, and the market is not saturated and can handle additional money inflows.
O’Hara added that the latest put-call ratio — widely used to gauge investor sentiment — was nearing ‘greed’, a territory that often coincides with short-term market peaks.
“The last time this ratio was this low was February 2019. The market took a brief pause before it ultimately continued higher.”
MKM favored large-caps over small-caps and said midcaps were right on the verge of breaking out. It cited “great opportunities” in health-care stocks as the NYSE Healthcare Index broke through to new highs last week.
After the Dow Jones Industrial Average and the S&P 500 hit record highs on Friday, Dow futures are flat, S&P 500 futures /zigman2/quotes/209948968/delayed ES00 +0.29% are down 0.1%, while Nasdaq /zigman2/quotes/210219788/delayed NQ00 +0.56% futures are also down. Asian stocks /zigman2/quotes/211618636/realtime XX:ADOW +0.21% climbed overnight as investors closely monitored trade-war updates, and European markets /zigman2/quotes/210599654/delayed XX:SXXP +1.58% edged lower in early trading.
China’s central bank on Monday lowered the interest rate on its regular reverse repurchase open market operations for the first time since October 2015, aiming to boost market confidence and prop up slowing growth. It also injected 180 billion yuan ($25.68 billion) into the monetary system.
The U.S. and China had “constructive talks” on trade in a high-level phone call on Saturday, according to Chinese state media agency Xinhua.
The Trump administration is expected to grant a 90-day license extension to allow U.S. companies to continue doing business with Huawei.
Exchange operators Euronext /zigman2/quotes/208368645/delayed FR:ENX +0.16% and Six Group are set to go head-to-head in a battle for control of Spain’s national stock exchange Bolsas y Mercados Españoles .
Saudi Aramco’s highly anticipated IPO will value the state oil giant at up to $1.7 trillion, the company said on Sunday, falling short of the initial $2 trillion target. It is still set to be the world’s largest ever IPO.
Computer group HP /zigman2/quotes/203461582/composite HPQ +2.28% said its board has rejected a $33.5 billion takeover offer from Xerox /zigman2/quotes/201169674/composite XRX +1.02% . HP said it recognizes the potential benefits of consolidation and was open to exploring other options to combine with Xerox.
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