U.S. stocks closed solidly higher on Thursday, with major indexes advancing in a broad rally that was led by the technology sector, which enjoyed its best session in more than a month.
Hopes that geopolitical tensions surrounding trade policy were easing also supported the market. The centrality of this issue to the economy was underlined after minutes from the Federal Reserve’s most recent gathering acknowledged intensifying risks from trade policies emanating from the Trump administration.
Where did markets close?
The Dow Jones Industrial Average DJIA, +0.75% gained 181.92 points, or 0.8%, to 24,356.74. The S&P 500 SPX, +0.86% added 23.39 points to 2,736.61, a gain of 0.9%. The Nasdaq Composite Index COMP, +1.12% rose 83.75 points, or 1.2%, to 7,586.43.
The day’s gains were widespread, with 28 of the 30 Dow components ending in positive territory, along with 10 of the 11 primary S&P 500 sectors. Technology stocks climbed 1.5% in their biggest one-day percentage gain since June 1, while the health-care, consumer-staples, real estate, and materials sectors all rose 1% or more. Energy was the only declining group, dropping less than 0.2%.
Trading was lighter than normal, with many market participants still out for the Fourth of July break, for which U.S. markets were closed on Wednesday.
What is driving the market?
Fed policy makers saw negative risks from U.S. trade policy, saying it “had intensified,” indicating that a tit-for-tat tariff clash could have negative effects on business sentiment and investment spending, according to the minutes of the June 12-13 Federal Open Market Committee released Thursday.
Despite the headwinds from trade clashes, the Fed said there was broad support for continued “gradual” rate increases. Officials noted that the benchmark federal-funds rate could be at or above its “neutral” level “sometime next year.” At the June meeting, the central bank lifted the fed-funds rate by a quarter of a percentage point to a range between 1.75% and 2% and the so-called dot plot, which is a graph of Fed members’ projections future interest rates, indicated two additional rate increases in 2018. That is more than the one additional rate increase that had been penciled in by market participants.
On Thursday, tensions over trade softened somewhat, with auto makers climbing after a U.S. official reportedly offered a “zero solution” to car tariffs. Such a deal would see the U.S. stop its threats to impose such duties in exchange for the European Union eliminating its levies.
Fiat Chrysler Automobiles NV FCAU, +5.98% shares jumped 6%, while Ford Motor Co. F, +0.55% added 0.6% and General Motors Co. GM, +1.28% GM, +1.28% rose 1.3%.
A day earlier, reports said the EU may try to broker talks between big auto producing countries to prevent tariffs from being hiked in an all-out trade war.
But if there was hope on the European front, trade tensions remained elsewhere. On Friday, the U.S. plans to impose $34 billion worth of duties on Chinese products, and Beijing is expected to implement its own retaliatory tariffs the same day—though not before the U.S. puts theirs into effect. There is a 12-hour time difference between Beijing and Washington.
China officials also cautioned that U.S. tariffs may backfire, because it could potentially harm American-owned enterprises that Trump intends to help.
What are market analysts saying?
“It’s clear the Fed isn’t all that shaken by trade drama or recent volatility,” said Mike Loewengart, vice president of investment strategy at E*Trade. “This is not the dovish Fed we knew only a couple of years ago. But to keep things in perspective, more increases only bring us closer to a normalized rate environment. The Fed is looking beyond the recent market volatility and regardless of if it’s one or two more hikes, clearly they feel we are on solid footing.”
What’s on the economic calendar?
The private sector added 177,000 jobs in June, according to the ADP employment report. This was below the 190,000 that had been forecast by analysts. Separately, initial jobless claims rose by 3,000 in the latest week, above what analysts had expected, although they remained near multidecade lows.
The final Markit services purchasing managers index for June came in at 56.5, compared with 56.8 in May. The Institute for Supply Management’s nonmanufacturing index for the same month came in at 59.1 from the previous month’s reading of 58.6. A reading of at least 50 signals improving conditions.
Which stocks are in focus?
Leading the technology charge higher was Facebook Inc. FB, +2.97% which popped 3% in its biggest one-day advance since April 26. The gain came after BTIG analyst Richard Greenfield raised his price target to $275 from $175.
Chip makers were also solidly higher, with the PHLX Semiconductor index SOX, +2.72% up 2.7%. Advanced Micro Devices AMD, +3.33% rose 3.3% while Nvidia Corp. NVDA, +2.49% climbed 2.5%.
Micron Technology Inc. MU, +2.64% advanced 2.6%. The company said a recently announced injunction against some of its products being sold in China could reduce its fourth-quarter sales by 1%. However, a Stifel Nicolaus analyst said recent losses in the chip maker’s stock could represent a buying opportunity.
U.S.-listed shares of Praxair Inc. PX, +2.99% gained 3% after the industrial-gases company said it would sell the bulk of its European gases business to Taiyo Nippon Sanso Corp. 4091, +14.19%
Boeing Co. BA, +0.08% rose 0.1% after it announced a partnership with Embraer SA ERJ, -10.34% to help both companies accelerate growth in the aerospace market. Boeing’s stake in the joint venture was valued at $3.8 billion.
Zebra Technologies Corp. ZBRA, -0.05% agreed to buy Xplore Technologies Corp. XPLR, +47.41% in a deal that values it at a 48% premium. Shares of Xplore surged 47% while Zebra ended down 0.1%.
Zynerba Pharmaceuticals Inc. ZYNE, -4.58% fell 4.6% after it said an early-stage trial of a cannabinoid skin patch failed to meet its main goals.
What are other markets doing?
Asian stock markets closed mostly lower, with the tech-heavy China Shenzhen ChiNext Composite 399106, -2.20% tumbling 2.2%. Equities in Europe traded higher, with the Stoxx Europe 600 index SXXP, +0.41% gaining 0.4%.
The ICE Dollar Index DXY, +0.06% declined 0.2% to 94.451, while gold prices GCQ8, -0.15% settled higher at $1,258.80 an ounce. Crude-oil prices CLQ8, -0.27% fell 1% to $73.42 a barrel.
