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Optimism over U.S.-China trade talks boosts stocks again

New York Stock Exchange, USA - 12 Feb 2019
A trader works on the floor of the New York Stock Exchange.
(Justin Lane / EPA/Shutterstock )

U.S. stocks finished broadly higher Wednesday as investors remained optimistic that the United States and China will make more progress in resolving their costly trade dispute.

Energy companies, retailers and industrial stocks accounted for much of the broad gains as the Standard & Poor’s 500 index extended its winning streak to a fourth day.

Key officials from the world’s two largest economies are scheduled to meet Thursday and Friday to try to stave off an escalation of a trade conflict that has hurt companies and consumers by raising prices on a number of products. President Trump has said he might let a March 2 deadline slide if the United States and China get close to a deal.

After March 2, additional tariffs are scheduled to kick in, making the situation worse. Economists and analysts are optimistic that both sides will eventually hammer out an agreement that satisfies U.S. complaints that China steals technology or pressures U.S. companies to hand it over.

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“The president’s seemingly positive tone regarding trade has helped underpin the market, particularly the industrial names,” said Quincy Krosby, chief market strategist at Prudential Financial. “That’s a positive catalyst for the market.”

The S&P 500 index rose 8.30 points, or 0.3%, to 2,753.03. The Dow Jones industrial average climbed 117.51 points, or 0.5%, to 25,543.27. The Nasdaq composite edged up 5.76 points, or 0.1%, to 7,420.38. The Russell 2000 index of smaller-company stocks, which has been performing better than the other indexes this year, rose 4.71 points, or 0.3%, to 1,542.94.

Major indexes in Europe also finished broadly higher, despite a report of slumping industrial output across the 19 countries that use the euro.

Companies on both sides of the U.S.-China trade war have been battered by Washington’s tariffs and retaliatory duties imposed by Beijing. The stakes are rising as global economic growth cools, which has contributed to a dimmer outlook for company earnings this year.

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Still, the White House’s remarks about the trade talks this week have helped alleviate some uncertainty for the market.

“The momentum that we saw yesterday has certainly carried through today,” said Erik Davidson, chief investment officer at Wells Fargo Private Bank.

The market briefly lost some of that momentum Wednesday morning as Sen. Marco Rubio (R-Fla.) announced plans to introduce a bill aimed at deterring companies from buying back their own stock. In a tweet, he said the argument that stock buybacks free up money for companies to reinvest in growth “isn’t backed up by the facts.”

Rubio’s remarks come as corporate stock buybacks hit new highs last year, led by technology companies.

Buybacks — in which companies purchase their own shares and retire them — are popular with investors because fewer shares outstanding lifts earnings per share, the most watched barometer of corporate success.

The sweeping tax law passed by the GOP-led Congress in late 2017 gave companies an incentive to boost their stock prices.

Rubio’s bill would tax corporate share buybacks to the same degree as dividends, with the goal of giving “permanent preference to investments that will drive the creation of jobs and increase wages,” Rubio tweeted.

The prospect of such a bill appeared to ruffle the markets briefly, Krosby said.

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But because Republicans control the Senate, “it’s hard to imagine” that Rubio’s bill would advance to the point of being voted on, she said. “Maybe that’s why the market is still up.”

With U.S. companies nearing the end of a relatively strong earnings reporting season, investors continued to evaluate the latest batch of quarterly results Wednesday.

Video game maker Activision Blizzard jumped 7% as it moved to lay off nearly 800 workers, in part to deal with a steep downturn in revenue following the best year in its history. The maker of the “Call of Duty” and “Candy Crush” games reported fourth-quarter revenue that fell short of analysts’ forecasts and said it expects revenue to decline about 20% this year. Activision is facing tougher competition, specifically from Epic Games’ “Fortnite,” which is siphoning away sales.

Higher room rates pushed hotel operator Hilton Worldwide to a strong fourth-quarter profit, beating analysts’ forecasts. The company also gave Wall Street a strong profit forecast for the current quarter. Hilton’s stock climbed 6.8%. Its competitor Marriott International rose 3.6%.

Groupon slumped 11.1% after the online daily deal service reported a quarterly profit that fell short of analysts’ forecasts. Customer traffic in its key North America market fell, dragging down revenue.

TripAdvisor slid 5.7% after the travel website operator reported weaker-than-expected fourth-quarter profit and lower revenue from its key hotel bookings segment.

U.S. benchmark crude rose 1.5% to settle at $53.90 a barrel in New York. Brent crude, the standard for international oil prices, gained 1.9% to close at $63.61 a barrel in London.

The pickup in oil prices gave a boost to energy stocks. Exxon Mobil rose 1.1%.

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Bond prices fell. The yield on the 10-year Treasury rose to 2.70% from 2.68%.

The dollar rose to 110.99 yen from 110.52 yen. The euro weakened to $1.1271 from $1.1331.

Gold edged up 0.1% to $1,315.10 an ounce. Silver slipped 0.2% to $15.65 an ounce. Copper was little changed at $2.77 a pound.

In other energy futures trading, wholesale gasoline rose 2.7% to $1.47 a gallon. Heating oil climbed 1.7% to $1.94 a gallon. Natural gas dropped 4.2% to $2.58 per 1,000 cubic feet.


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