By Karen Langley and Avantika Chilkoti
The S&P 500 set a record for the first time in three months
to kick off a busy week that features a flurry of corporate
earnings, a Federal Reserve meeting and the October jobs
report.
Optimism about lower interest rates and hopes for a resolution
to the long-simmering trade dispute between the U.S. and China have
propelled stocks this year after a brutal selloff to end 2018. The
S&P 500 is up 21% in 2019 -- though most of those gains came in
the first four months of the year.
The broad stock-market index inched up 16.87 points, or 0.6%, to
3039.42, a new record close. Technology stocks led the way as
shares of Apple and Microsoft also set new highs.
The Nasdaq Composite added 82.87 points, or 1%, to 8325.99, its
second-highest close in history. The Dow Jones Industrial Average,
meanwhile, gained 132.66 points, or 0.5%, to 27090.72, leaving the
blue-chip index within 1% of July's high.
Major indexes have lately been stuck in a narrow trading range
as signs of slowing global growth dented corporate investment and
spurred anxiety among investors. A better-than-feared corporate
earnings season has helped alleviate some of those worries.
"I think the market had been pricing in that we were on the
footsteps of a recession, and I think that's changed," said Michael
Mullaney, director of global markets research at Boston Partners,
who attributed the changed perspective in part to the Federal
Reserve's shift to increasing its balance sheet.
The Fed is expected to cut interest rates Wednesday for the
third time this year to insulate the economy against the effects of
slower growth. Investors will be closely watching to see whether
the central bank signals a timeout after that.
U.S. factory activity in September contracted for the second
straight month and hit a 10-year low, and there have been signs
that the manufacturing slowdown is spreading to the labor market
and crimping consumer spending. Friday's monthly jobs report is
expected to offer fresh clues about the health of the economy.
"We think equities are quite attractive at current prices, given
the low-interest-rate environment," said Dev Kantesaria, portfolio
manager and founder of Valley Forge Capital Management. "We expect
over the long term -- the next three years, five years -- for the
S&P 500 to hit new highs."
The yield on 10-year Treasurys rose to 1.853%, from 1.805%
Friday, ahead of the anticipated rate cut.
About 150 companies in the S&P 500, including General
Motors, Facebook and Apple, are on tap to report quarterly results
this week, and investors will be listening carefully for insight
into how the trade war is affecting their businesses.
Most earnings reports from big companies have beaten the low
expectations of analysts, but earnings are still on track to fall
3.8% from a year earlier, according to FactSet.
Google parent Alphabet reported a smaller-than-expected profit
and a slowdown in revenue growth after the market closed Monday,
pushing the stock down about 2% in off-hours trading.
Monday's gains were driven by the technology, health care and
communication services sectors, while the real estate, utilities
and consumer staples sectors lagged behind. Investors pointed to a
resurgence of cyclical stocks, which are typically tied to the
health of the U.S. economy, at the expense of so-called defensive
stocks.
The dispute between the U.S. and China has disrupted the global
trade system, and stocks rallied late last week on reports that the
two countries were edging closer to completing a "phase one deal."
But investors have responded to a drip of both good and bad news on
trade, and the possibility of another round of tariffs in December
continues to fuel caution.
Fast-moving geopolitical events are holding back corporate
performance, said Esty Dwek, a strategist at Natixis Investment
Managers.
"It's a confirmation that there's a lot of uncertainty, and the
more you can remove some of this uncertainty the more you'll have
better guidance and confidence in terms of hiring and investing,"
Ms. Dwek said.
Corporate news drove swings in individual stocks. Shares of
Tiffany surged $31.17, or 32%, to $129.72 after LVMH Moët Hennessy
Louis Vuitton confirmed it is talks for a potential takeover that
would value the iconic jewelry brand at $14.5 billion.
Microsoft gained $3.46, or 2.5%, $144.19 after the software
company won a contract worth up to $10 billion over the next decade
from the Pentagon. AT&T added $1.58, or 4.3%, to $38.49 after
the company struck a truce with an activist investor.
Shares of PG&E fell $1.20, or 24%, to $3.80 amid mounting
concerns about the bankrupt electric utility's potential liability
related to the Kincade Fire burning in California.
In Europe, the pan-continental Stoxx Europe 600 index added
0.2%. The U.K.'s FTSE 100 gauge ticked up 0.1% as European Union
leaders agreed to a three-month extension to the Brexit deadline,
extending the political uncertainty until Jan. 31.
Asian markets had a stronger start to the week. The Shanghai
Composite Index gained 0.9% and Hong Kong's benchmark Hang Seng
Index climbed 0.8%.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
October 28, 2019 17:07 ET (21:07 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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