Tuesday's Stock Market Close: US Equities Reach New Highs On Optimism With China Trade Talks, Signs Of Strong U.S. Economy

U.S. equity indexes closed at new highs on Tuesday as President Donald Trump said he has been speaking to Chinese leader Xi Jinping on working out a trade pact.

"We're in the final throes of a very important deal, I guess you could say one of the most important deals in trade ever," Trump said.

The Dow Jones Industrial Average gained 54.26 points to 28,120.73 while the S&P 500 was up 6.76 points to 3,140.40 and the Nasdaq Composite Index gained 15.44 points to 8,647.93.

Volume on the New York Stock Exchange totaled 2.93 billion shares with 1,596 issues advancing, 138 setting new highs, and 1,369 declining, with 27 setting new lows.

Active movers were led Fitbit Inc. (FIT), NIO Inc. (NIO) and General Electric Co. (GE)

Jeanette Garretty, managing director and principal of Robertson Stephens Wealth Management in San Francisco said “The equity markets on any given day are happy to look at the talks and be happy about things but it sets up some volatility.”

But some observers are getting impatient.

"We’re getting to the point where they need to show us the money,” said Michael Reynolds, investment strategy officer at Glenmede Trust Co. “Talk is one thing but an actual deal on paper, pen to paper, is what is going to dramatically change the market narrative.”

Trade talks between China and the U.S. were also conducted by phone earlier on Tuesday and officials “reached consensus on properly resolving relevant issues,” promising to discuss other points of the phase one deal, China’s Ministry of Commerce said in a statement. The U.S. Trade Representative’s Office confirmed a meeting took place.

Federal Reserve Governor Lael Brainard said Tuesday the central bank should consider capping interest rates the next time it faces an economic downturn. In a speech at the New York Association for Business Economics, Brainard also suggested using Treasury purchases to limit the rise of short- and medium-term government bond yields.

Brainard gave an upbeat near-term view of the U.S. economy.

“There are good reasons to expect the economy to grow at a pace modestly above potential over the next year or so, supported by strong consumers and a healthy job market, despite persistent uncertainty about trade conflict and disappointing foreign growth,” she said.

“Recent data provide some reassurance that consumer spending continues to expand at a healthy pace despite some slowing in retail sales. Consumer sentiment remains solid, and the employment picture is positive. Housing seems to have turned a corner and is poised for growth following several weak quarters.”

Federal Reserve Board Chair Jerome Powell took a somewhat upbeat view of the U.S. economy in comments made Monday evening in Rhode Island to the Greater Providence Chamber of Commerce.

Powell said with the jobless rate near a 50-year low of 3.6%, there is “plenty of room” for wages to rise and for more people to join the workforce.

“Recent years’ data paint a hopeful picture of more people in their prime years in the workforce and wages rising for low- and middle-income workers,” Powell said. “But this is just a start: There is still plenty of room for building on these gains. The Fed can play a role in this effort.”

Powell said the three cuts in interest rates this year have prompted more homebuying which in turn has helped continue the economic expansion. “Fortunately, the outlook for further progress is good: Forecasters are generally predicting continued growth, a strong job market and inflation near 2%,” he said.

For now, Powell added, monetary policy is “well positioned to support a strong labor market and return inflation decisively to our symmetric 2% objective. If the outlook changes materially, policy will change as well. At this point in the long expansion, I see the glass as much more than half full.”

The S&P CoreLogic Case-Shiller U.S. National Home Price Index revealed home prices rose 3.2% nationally on an annualized basis in September, up from a 3.1% gain in August. Phoenix, Charlotte and Tampa witnessed the highest annual gains, at 6%, 4.6% and 4.5%, respectively.

“After a long period of decelerating price increases, it’s notable that in September both the national and 20-city composite indexes rose at a higher rate than in August while the 10-city index’s September rise matched its August performance,” Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, wrote. “It is, of course, too soon to say whether this month marks an end to the deceleration or is merely a pause in the longer-term trend.”

The U.S. trade deficit in goods fell by 5.7% in October to $66.5 billion, a 17-month low. Economists had expected a $71.8 billion deficit. The report also showed an 0.2% increase in wholesale inventories and a 0.3% rise in retail inventories.

The Conference Board reported its consumer confidence index fell to 125.5 in November, down from 126.1 in October. It marked the fourth straight monthly drop. Economists had expected the index to rise to 126.6 in November.

Lynn Franco, senior director of economic indicators at the board, said the data “suggests that economic growth in the final quarter of 2019 will remain weak.” But she added that overall, “confidence levels are still high and should support solid spending during this holiday season.”

The Commerce Department said new home sales fell 0.7% to a seasonally adjusted annual rate of 733,000 units in October while the figure for September was revised higher to 738,000 units. Economists had expected an increase of 1.1% in October.

Shares of Best Buy (BBY) jumped to a 52-week high after the retailer posted earnings and revenue that exceeded analysts’ expectations and also raised its earnings guidance.

Overnight, Asian markets were mixed with the Hang Seng slipping 0.29% while Japan's Nikkei 225 gained 0.35% and China's Shanghai Composite added 0.03%.

European markets were mixed with the FTSE 100 up 0.07% while Germany's DAX fell 0.1% and France's CAC 40 finished flat.

Crude oil futures gained 0.62% to $58.37 per barrel and Brent crude were flat at $63.21. Gold futures were up 0.36%.

The euro was up 0.1% to $1.1025 while the pound sterling slipped 0.27% to $1.2864.

The yield on the 10-year Treasury dropped 1.36% to 1.74% while yield on the 30-year Treasury fell 1.31% to 2.178%.