S&P 500; US Indexes Fundamental Daily Forecast – Investors Banking on Favorable U.S. – China Trade Deal

The major U.S. stock indexes finished higher across the board on Monday with the Dow posting its eighth straight session of gains. The markets were primarily supported by an easing of trade tensions between the United States and China.

In the cash market, the benchmark S&P 500 Index settled at 2730.13, up 2.41 or +0.09%. The blue chip Dow Jones Industrial Average finished at 24899.41, up 68.24 or +0.27% and the tech-driven NASDAQ Composite closed at 7410.41, up 7.53 or +0.10%.

The S&P 500 Index was underpinned by strong performances in the energy, healthcare and materials sectors. Strong moves in shares of UnitedHealth and Walmart supported the Dow.

The catalyst behind the rally was a positive Tweet from U.S. President Donald Trump who pledged Sunday to help Chinese technology firm ZTE Corp to “get back into business, fast” after a U.S. ban had significantly hampered the Asian company.

In his Tweet, Trump wrote, “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!”

Traders said the President’s soft tone is probably a strategy to get China’s help in convincing North Korea to agree to a favorable deal when Trump meets with North Korean leader Kim Jong-un in Singapore on June 12.

The NASDAQ Composite was helped by this news, which drove up shares of optical component makers like Oclaro, Lumentum and Finisar, which rose 2.9 percent, 2.2 percent and 1 percent respectively.

Chip stocks also rose on Monday after a report said Chinese regulators will restart a review of the proposed acquisition of NXP Semiconductors by Qualcomm. NXP shares jumped 11.0 percent on the news, while Qualcomm’s stock gained 2.7 percent. The Vaneck Vectors Semiconductor ETF (SMH) 1.7 percent on the news.

Forecast

Monday’s price action strongly suggests investors are banking on a trade deal between the United States and China. However, this may not be the case, which means we could see the return of excessive volatility if a deal isn’t completed soon.

Commerce Secretary Wilbur Ross said the gap between the U.S. and China “remains wide.” He also said:  “Before landing in China we sent them an extremely detailed list of our needs, and they responded with a similarly detailed but as you can imagine quite different list of their proposals.”

On Tuesday, investors will likely react to the U.S. Retail Sales report. Core Retail Sales are expected to come in at 0.5% and Retail Sales at 0.4%. Strong numbers will indicate economic growth.

Minor reports include the Empire State Manufacturing Index, Business Inventories, NAHB Housing Market Index and TIC Long-Term Purchases. FOMC Member Williams is also scheduled to speak.