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James Hyerczyk
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Stock Market Trend
Stock Market Trend

After treading water most of the week on concerns over a financial crisis in Turkey, U.S. stock market investors have returned with a vengeance on Thursday, driven by optimism over the scheduling of a meeting between the United States and China, and a robust earnings report from Walmart, which signals the economy is still working on all cylinders.

Shortly after the cash market opening the benchmark S&P 500 Index was up nearly 1 percent, led by a strong performance in consumer staples. The Dow Jones Industrial Average rose more than 300 points, driven by solid gains in Walmart. The tech-driven NASDAQ Composite was also up about 0.7%, boosted by the telecom sector, and shares of Cisco Systems.

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The rally started slowly early Thursday with China announcing it had received an invitation from the United States to resume trade dispute negotiations in late August. The report triggered a reversal in the Asian equity markets with buying spilling over to Europe then the U.S.

The rally was further supported by National Economic Council Director Larry Kudlow, who confirmed to CNBC’s “Squawk Box” that China and the U.S. will hold a fresh round of trade talks later in August, giving investors hope the two world’s largest economies can solve their ongoing trade spat.

With the stock market posting impressive gains on just the announcement of the scheduling of the meeting, one has to wonder how well it will perform once the actual meeting starts, and if the negotiators announce any positive developments.

Nonetheless, today’s stellar performance is further proof that the bull market is not dead as some had suggested earlier in the week when prices retreated in reaction to the turmoil in Turkey. In hindsight, it looks as if investors were just waiting for an opportunity to jump in when stocks prices hit levels that represented value.

Walmart to the Rescue

The overall stock market got a boost from strong Walmart quarterly earnings. The news was not only supportive for the stock, which rose over 10 percent, but it also helped the consumer sector post solid gains. The Dow benefitted greatly from Walmart’s strong gains. The S&P was boosted by the surge in the consumer sector.

Overall, the news that Walmart’s reported its biggest jump in U.S. sales in a decade indicated that consumer buying was still strong despite rising inflation and stagnant wage growth. This also supports the Fed’s plan to raise interest rates in September.

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Easing of Worries, Not Quite

Up until last night’s announcement, global investors were paying more attention to the events in Turkey than to the trade dispute between the U.S. and China. The news once again brought U.S.-China relations back to the forefront. However, just because it grabbed the headline, investors shouldn’t stop watching Turkey.

The events unfolding in Turkey may be the tip of the iceberg of more problems to follow especially since it raised concerns over the weak conditions in the emerging markets. The currency crisis in Turkey is far from over because officials in the country only glossed over the issues. They still have to find more permanent solutions to shore up the economy, or sellers are going to hit the Turkish Lira again and therefore expose the Euro Zone to contagion in the banking system.

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