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Dow Plays Catch-Up, Hitting New Record While Posting Solid Weekly Gain

The catalyst driving stocks higher this week was an easing of tensions over the trade dispute between the United States and China. The trade dispute did escalate with both the U.S. and China imposing new tariffs on each other, but investors felt the new tariffs were less than feared.
James Hyerczyk
Bull Market
Bull Market

The major U.S. equity markets finished mixed on Friday, with the Dow finishing higher and the S&P 500 Index and NASDAQ Composite closing lower. The Dow and S&P 500 hit record highs on Friday while posting solid gains for the week. The NASDAQ Composite struggled to gain traction while finishing lower for the week.

In the cash market, the benchmark S&P 500 Index settled at 2929.67, down 1.08 or -0.04%. The blue chip Dow Jones industrial Average closed at 26743.50, up 86.52 or +0.32% and the tech-driven NASDAQ Composite finished the session at 7985.64, down 42.59 or -0.53%.

The catalyst driving stocks higher this week was an easing of tensions over the trade dispute between the United States and China. The trade dispute did escalate with both the U.S. and China imposing new tariffs on each other, but investors felt the new tariffs were less than feared. This fueled a buying spree especially in the Dow because its components suffered the most during the initial phase of the tariffs. The Dow essentially caught up to the rest of the major indices.

To recap, earlier in the week, the Trump administration announced it would impose a 10 percent tariff on $200 billion worth of Chinese imports. This was actually bullish news because the market had priced in a 25 percent tariff. However, the full amount will be applied on January 1 if a new trade deal isn’t made.

China retaliated by announcing levies targeting over 5,000 American products worth $60 billion. The new tariffs are scheduled to go into effect next week. Investors celebrated this news because some thought that China would target the supply chain by preventing the export of strategic minerals and key components for U.S. electronic products.

In other stock market related news, investors braced throughout the session for the rare combination of a Quadruple Witching and an S&P 500 Reclassification. Both events had the potential to cause huge volume and volatility swings near the close of the session, but we didn’t see the large move. Although some can argue that the late session sell-off in the S&P Index and the weakness in the technology driven NASDAQ Composite may have been driven by the events.

To bring everyone up to speed, a Quadruple Witching occurs when futures and options on indexes and individual stocks expire simultaneously. The event generally results in some of the biggest trading days of the year.

During the rare S&P 500 Index reclassification, the folks at S&P reshuffled its benchmark index by sending Google-parent Alphabet, Netflix, Facebook and Twitter to the telecommunication services sector. The new sector will also be renamed communication services starting Monday. Disney and CBS will also be added to the revamped space.

The reason for the change was to create the new communication service sector which would better reflect the rapidly changing way the world’s population communicates. Additionally, it is expected to result in more cyclical, lower-yielding sector.

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