UPDATE: S&P 500, Nasdaq rally to close week higher as Trump's actions against China seen not as disruptive as feared
By William Watts, MarketWatch
April consumer spending plunges, but economists say worst may be over
U.S. stock indexes ended mostly higher Friday and booked sharp gains for the week and month, after a news conference from President Donald Trump on China turned out to be not as disruptive to trade and finance as had been feared.
Equities have rallied this week, lifted by optimism over the easing of lockdowns put in place to contain the COVID-19 pandemic and economic relief efforts by the Federal Reserve and Congress.
How did major indexes do?
The Dow Jones Industrial Average finished 17.53 points, or less than 0.1%, lower at 25,383.11, but ended Friday well off its intraday nadir at 25,031.67. Meanwhile, the S&P 500 closed 14.58 points, or 0.5%, higher at 3,044.31. The Nasdaq Composite Index surged 120.88 points, or 1.3%, higher to end at 9,489.87.
Stocks also booked sharp gains for the week and month. The Dow closed 3.8% higher for the week, while the S&P 500 gained 3%, and the Nasdaq notched a weekly advance of 1.8%.
For the month, the Dow logged a 4.3% gain, the S&P 500 climbed 4.5%, while the Nasdaq marked a 6.8% return in May.
What drove the market?
In a news conference in the White House's Rose Garden, Trump announced a number of measures to address what he described as China's "malfeasance."
Investors, however, were more attuned to the fact that Trump did not mention the trade deal with China signed in January and (http://www.marketwatch.com/story/trump-says-us-will-move-to-sanction-chinese-officials-over-smothering-hong-kong-but-makes-no-mention-of-phase-one-trade-deal-2020-05-29)he did not level sanctions directly against Beijing.
Trump did suspend entry into the U.S. by some Chinese nationals, and said he would cut ties with the World Health Organization, over what he claimed was China's "total control" of the heath agency. He also said that the U.S. would study the "differing" accounting practice of Chinese companies listing on U.S. exchanges and "begin" to end Hong Kong's special trading status.
"I think the market anticipating something more stringent than what was announced," Lindsey Bell, chief investment strategist with Ally Invest, told MarketWatch. Trump also said his administration would begin to eliminate policy exemptions for Hong Kong.
See: Trump says U.S. will quit World Health Organization, begin to revoke special treatment for Hong Kong as China brawl ramps up (http://www.marketwatch.com/story/trump-says-us-will-move-to-sanction-chinese-officials-over-smothering-hong-kong-but-makes-no-mention-of-phase-one-trade-deal-2020-05-29)
The measures come as China has tightened its control over Hong Kong, which has drawn a rebuke from other nations and escalated Sino-American tensions as the two nations trade barbs over their responses to the coronavirus pandemic.
The Trump administration has repeatedly accused China of covering up the viral outbreak (https://thehill.com/homenews/administration/496047-trump-steps-up-effort-to-blame-china-for-coronavirus), which was first identified in Wuhan, China in December and has infected nearly six million people globally, according to the latest data compiled by Johns Hopkins University.
"Risk appetite remained intact after President Trump did not hit China with fresh tariffs or end the phase-one trade deal," said Edward Moya, senior market analyst at Oanda, in a research note after Trump's news conference. "Financial markets reacted positively after Trump laid out a series of policies that did not surprise financial markets," he said.
Indeed, U.S. equities have rallied this week, lifted by optimism over the easing of lockdowns put in place to contain the COVID-19 pandemic and historic stimulus efforts by the Federal Reserve and other central banks as well as fiscal measures by governments.
Fed chair Powell, in a webcast event, said the Fed has plenty of room to continue expanding its balance sheet and again pushed back on the idea of pushing interest rates into negative territory. The Fed chief said risks to growth and inflation remain tilted to the downside and that the burden created by the pandemic is falling disproportionately on lower income workers.
See: Fed's Powell says he's sleeping better than at start of the COVID-19 outbreak (http://www.marketwatch.com/story/fed-s-powell-says-hes-sleeping-better-than-at-start-of-the-covid-19-outbreak-2020-05-29)
While U.S. economic data remains dismal, stock-market bulls said signs of the contraction bottoming out have helped fuel gains, with investors playing down the threat of a second wave of infections later in the year.
On the U.S. economic front, April consumer spending slumped 13.6% but personal income soared by 10.5% (http://www.marketwatch.com/story/consumer-spending-drops-136-in-april-incomes-rise-105-2020-05-29), which the Bureau of Economic Analysis said was due to an increase in government social benefits in response to the COVID-19 pandemic, noting that the bulk of the tax rebate checks were issued last month.
"Household spending will likely continue to be impacted going forward by a more cautious attitude by consumers as job losses continue to mount. However, we think April likely marked the bottom and activity could be less weak in May and June," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
The U.S. trade deficit in goods increased by 7.2% in April (http://www.marketwatch.com/story/trade-deficit-in-goods-rises-to-697-billion-in-april-advanced-data-show-2020-05-29), according to the Commerce Department's advanced estimate. The gap in goods was $69.7 billion in April versus a revised $65 billion for March. Economists polled by MarketWatch had expected a deficit of $63 billion for April.
The May Chicago Purchasing Managers Index fell to 32.3 in May from 35.4 in April. Any reading below 50 indicates worsening conditions. A final May reading on the University of Michigan's consumer confidence index rose to 72.3 from an April level of 71.8. Economists surveyed by MarketWatch had forecast a reading of 73.7.
Which companies were in focus?
How did other markets trade?
In global equities, the Stoxx Europe 600 index closed 1.4% (http://www.marketwatch.com/story/european-stocks-fall-on-rising-us-china-tensions-2020-05-29) lower. In Asia, the Nikkei ended 0.2% lower, and Hong Kong's Hang Seng Index closed down 0.7%.
The 10-year Treasury note yield fell 5.3 basis points (http://www.marketwatch.com/story/treasury-yields-tumble-ahead-of-trump-news-conference-on-china-2020-05-29)to 0.650% on haven-related buying on Friday. Yields fall as bond prices rise.
The greenback lost ground against its major rivals, with the ICE U.S. Dollar index, a measure of the currency against a basket of six major rivals, down 0.2%.
West Texas Intermediate crude for July delivery rose $1.78, or 5.3%, to settle at $35.49 a barrel (http://www.marketwatch.com/story/oil-sinks-on-demand-jitters-us-china-tensions-but-on-track-for-biggest-monthly-rise-in-11-years-2020-05-29) on the New York Mercantile Exchange. Front-month U.S. benchmark WTI futures rose 88.4% for May, for its best month on record, based on data going back to 1983, according to Dow Jones Market Data.
August gold rose $23.40, or about 1.4%, to end the week at $1,751.70 an ounce (http://www.marketwatch.com/story/gold-rises-friday-and-set-for-weekly-gain-as-investors-await-president-trump-statement-on-china-2020-05-29). Gold tacked on 3.4% for the month.
-William Watts; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
May 29, 2020 16:34 ET (20:34 GMT)
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