Stocks Make a U-Turn After Trade Deal Clarification

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Stocks rose Tuesday after having sold off in the futures market Monday night. A positive tweet from President Trump saw the market reverse course promptly. 

All three major U.S. indices rose, with the S&P 500 up 0.8%. The 10-Year Treasury yield rose to 0.73%. Yields rise when prices fall. 

Monday night, S&P 500 futures were down 1.3% until Trump tweeted: "The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” 

Stocks took a U-turn. And while stocks can often be highly news driven on a day-to-day basis, the current market environment has been highly reactive to news, as corporate guidance is largely absent and earnings trends aren’t the best predictor of the future as virus cases climb and the market fears more lockdowns. 

Monetary and fiscal stimulus provide support. "Until you have some true earnings that you can actually make some more projections, we are going to operate in a market where any piece of news can send S&P futures up and down in a mater of seconds,” JJ Kinahan, Chief Market Strategist at TD Ameritrade told TheStreet. 

On China, experts and some investors expect the end of the free trade era with China, which would mean changes to supply chains and cost structures for companies. But “the markets have continued to sing an optimistic tune despite souring relations between the US and China,” wrote Jasper Lawler, head of research at London Capital Group in emailed remarks to reporters. "This wobble overnight demonstrates that optimism rests on the idea that souring relations won’t threaten the phase one deal.”

Leading the market were economically sensitive classes of stocks. The Russell 3000, a small cap index, rose more than 1%. Oil etf  (XLE) - Get Report rose 1.3%. Banking ETD  (KBWB) - Get Report rose 2.9%. 

This all comes as virus cases climb. Johns Hopkins data show the 5-day moving average of daily new cases in the U.S. is 31,000, up from 17,000 almost a month ago. The market has its eye on cases, but glass-half-full markets tend to rise on good news, regardless of bad news. 

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