S&P 500; US Indexes Fundamental Daily Forecast – Could Rally into Wednesday’s Fed Minutes

The major U.S. stock indexes finished sharply higher on Monday as investors responded positively to an easing of trade tensions between the United States and China. Equities were also boosted by fresh deal making activity.

In the cash market, the benchmark S&P 500 Index settled at 2733.01, up 20.04 or +0.74%. The blue chip Dow Jones Industrial Average closed at 25013.29, up 298.20 or +1.21% and the tech-based NASDAQ Composite finished at 7390.31, up 35.97 or +0.49%.

The S&P 500 Index was supported by a 1.5 percent jump in the industrials sector. Semiconductors drove the NASDAQ Composite higher.

Big exporters in the Dow like Boeing, Caterpillar and United Technologies benefited the most from the easing trade tensions between the United States and China. This helped the Dow close over the psychological 25,000 level for the first time since mid-March.

To recap the catalyst behind the bullish price action, Treasury Secretary Steven Mnuchin said over the week-end the prospect of a trade war was “on hold” following an agreement between the U.S. and China to suspend tariff threats.

Additionally, on Saturday, negotiators from the world’s two largest economies said they would continue talking about measures under which Beijing would import more energy and agricultural commodities from the U.S. in an effort to bridge the $335 billion annual U.S. goods and services trade deficit with China.

Mnuchin added on Monday the U.S. made “very meaningful progress” with China on trade matters. “Now it’s up to both of us to make sure that we can implement it,” Mnuchin told CNBC’s “Squawk Box.”

President Trump tweeted, “China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products – would be one of the best things to happen to our farmers in many years!”

In other news, GE shares rose 2 percent after it announced it will merge its transportation business with Wabtec. Fifth Third Bancorp agreed to buy MB Financial and Micron shares jumped 3.3 percent after the company raised its guidance because of a “healthy” semiconductor industry.

Forecast

Stocks rallied on Monday because the news offered investors some relief over trade concerns. The momentum into the close suggests there may be some follow-through to the upside on Tuesday. However, gains may be limited because there are still concerns over steel and aluminum tariffs on the European Union that are expected to start in June.

Gains could also be limited until the markets fully absorb the impact of rising Treasury yields. However, prices are likely to remain underpinned so long as progress persists in trade talks with China.