Wednesday's Stock Market Close: US Equities Rise As US-China Sign Trade Deal, But Below Earlier Highs

U.S. stocks closed modestly higher Wednesday as traders observed the signing of phase one of the U.S.-China trade deal in Washington. However, trading was very volatile in the late afternoon before settling down. Still the Dow Jones Industrial Average closed above 29,000 for the first time.

The Dow Jones Industrial Average rose 91.5 points to 29,031.17 while the S&P 500 climbed 6.21 points to 3,289.36 and the Nasdaq Composite Index gained 7.37 points to 9,258.70. The Dow closed at a new record high.

Volume on the New York Stock Exchange totaled 3.02 billion shares with 1,535 issues advancing, 268 setting new highs, and 1,406 declining, with seven setting new lows.

Active movers were led by NIO Inc. (NIO), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC).

In discussing the trade deal, President Donald Trump said the U.S. and China were “righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families.” He also said the deal has “total and full enforceability.”

Chinese President Xi Jinping called the trade deal “good for China, for the U.S. and for the whole world.”

But investors are concerned that the trade deal with China will keep tariffs in place on nearly two-thirds of Chinese goods at least until the presidential election in November. The deal will also punish China for failing to accomplish promises made on currency, intellectual property and trade balance.

“We’re leaving tariffs on, but I will agree to take those tariffs off if we are able to do ‘phase two.’ In other words, we’re negotiating with the tariffs,” Trump said on Wednesday.

"The risk in the market is that the trade situation deteriorates, not that it stays the way it is,” said Willie Deliwche, investment strategist at Baird. “If it’s improving, then by definition it’s not deteriorating and that’s a good thing.”

“While it does not appear that the ‘phase one’ deal addresses many of the structural issues that started the trade spat, it does mitigate the uncertainty that ongoing trade tensions present, namely the threat of new tariffs at a moment’s notice,” said Jason Pride, chief investment officer of private wealth at Glenmede Trust Co. in Philadelphia.

U.S. economic activity expanded “modestly” over the final six weeks of 2019, said the Federal Reserve’s Beige Book on Wednesday. Richmond and Dallas reported above-average growth while Philadelphia, St. Louis and Kansas City reported sub-par performance. But expectations of the near-term outlook “remained modestly favorable.”

White House economic adviser Larry Kudlow also said the Trump administration will introduce more tax cuts later this year.

Russia’s state news agency Tass reported that its government has resigned. The news followed a speech delivered by Russian President Vladimir Putin to lawmakers.

The producer price index edged up 0.1% in December. Economists had expected a 0.2% increase. Wholesale inflation rose only 1.3% in 2019, about half as much as it did in the prior year.

UnitedHealth (UNH) rose 2.9% after posting better than expected quarterly results.

Target (TGT) plunged 6.6% after reporting weak holiday same-store sales.

Mark Haefele, global chief investment officer at UBS GWM, is optimistic about the earnings season.

“We see the upcoming reporting season marking a turning point after a period of weak profit growth for U.S. companies, one that should push equities higher this year even though the potential for further multiple expansion is modest in our view,” he said in a note. “So we have modestly increased our forecast for U.S. [earnings] growth to 6% this year.”

Overnight in Asia, markets finished lower. China’s Shanghai Composite dropped 0.54%, while Hong Kong’s Hang Seng fell 0.39%, and Japan’s Nikkei-225 tumbled 0.45%.

In Europe markets finished mixed, as Britain’s FTSE-100 gained 0.27%, France’s CAC-40 slipped 0.14% and Germany’s DAX fell 0.18%.

Crude oil futures fell 0.41% at $57.99 per barrel and Brent crude pose 0.36% at $64.23. Gold futures rose 0.73%.

The euro gained 0.22% at $1.1153 while the pound sterling edged up 0.09% at $1.3029.

The yield on the 10-year Treasury dropped 1.65% to 1.788% while yield on the 30-year Treasury fell 1.45% to 2.242%.