U.S. stocks rallied Monday, rising with European and several Asian markets following surprisingly strong reports on China’s economy.
Growth in factory activity and retail sales in the world’s second-largest economy both beat analysts’ expectations for last month. That layered on top of optimism from last week’s long-awaited “Phase 1” trade deal between China and the United States, which removed some of the uncertainty that’s hung over businesses and investors.
The interim trade deal is one of a “trifecta of positive catalysts” that swept through the market last week and could help support it through the end of the year, Morgan Stanley strategists wrote in a research note. The others are a Federal Reserve that appears committed to keeping interest rates low and the potential for an orderly exit by the United Kingdom from the European Union, following last week’s U.K. elections.
Monday’s rally was broad, with roughly 85% of the stocks in the S&P 500 rising. Energy stocks were at the head of the pack after the price of oil added to its gain last week . Health care and technology stocks were also particularly strong.
KEEPING SCORE: The S&P 500 was up 0.9% as of 1:15 p.m. Eastern time. It’s on pace for its fourth straight gain.
The Dow Jones Industrial Average rose 170 points, or 0.6%, to 28,304 and the Nasdaq composite was up 1.1 %.
CHINA STRENGTH: China’s industrial production rose 6.2% from a year earlier, up from the previous month’s 4.7%. Retail sales growth rose to a five-month high of 8% from October’s 7.2%.
The interim “Phase 1” trade agreement announced Friday was relatively modest but in line with the investors’ expectations.
“With some trade uncertainty removed last week, investors should start feeling more confident that China will be able to keep their economy growing at 6% or better in 2020,” said Edward Moya, economist with Oanda.
TRADE BOOST: The initial U.S.-China trade deal and progress on the U.S.-Mexico-Canada trade agreement have sharply lowered the uncertainty surrounding trade and the global economy that has discouraged business spending and dragged on the U.S. economy all year. Trade could even bolster the U.S. economy in 2020, though economists caution any benefit will likely be modest.
“We think it is significant that the announcement represents the first time that trade negotiations have led to an actual reduction in tariffs, rather than a mere delay,” said Mark Haefele, chief investment officer at Swiss bank UBS. “We may have reached the point of “peak tariffs.'”
The U.S. and China agreed last week to cut tariffs on some of each others’ goods and postpone other tariff threats, the first time the two countries have stepped back from the brink in their 17-month trade fight.
In return, China promised to ramp up its purchases of U.S. agricultural, energy and other goods and to stop forcing U.S. companies to turn over technology as a condition of doing business in that country.
YIELD EFFECT: Treasury yields rallied. The 10-year yield rose to 1.88% from 1.82% late Friday.
Higher rates can mean bigger profits for banks making loans and more interest income for insurers, brokerages and other financial companies. Bank of America rose 1.6%, Wells Fargo gained 1.4% and JPMorgan Chase added 1.1 %. Financial stocks in the S&P 500 overall gained 0 .9 %.
Stocks that pay big dividends, meanwhile, were lagging the market because higher interest payments for bonds can lure away some income-seeking investors. Real-estate investment trusts rose 0.1% for the smallest gain among the 11 sectors that make up the S&P 500.
TOP RETURNS: Energy stocks were the market’s best performers, rising 1.4 %, after the price of oil added a bit to its gain last week and natural gas prices jumped. Oil and gas producer EOG Resources climbed 2.5%, while Marathon Petroleum jumped 3.6 %.
Benchmark U.S. crude rose 5 cents to $60.12 per barrel and is close to its highest level in three months. Brent crude, the international standard, added 20 cents to $65.42 per barrel, and natural gas jumped 7 cents, or 3%, to $2.36 per 1,000 cubic feet.
Technology stocks were also strong. Micron Technology jumped 5.4% and Broadcom rose 3.4 %. Tech stocks have swung often in recent months, with every hint of progress on the U.S.-China trade war because of how much business the companies do in China.
SCENT OF A DEAL: International Flavors and Fragrances fell 8 % for the biggest loss in the S&P 500 after after it said it’s merging with DuPont’s Nutrition and Biosciences unit in a $26.2 billion deal.
MAX WORRIES: Boeing fell 3.4% on a report that the company may cut production of its troubled 737 Max airplane or even suspend it all together. The Wall Street Journal said the company could announce a decision Monday.
MARKETS ABROAD: European markets were broadly higher. Asian markets were mixed.