US: S&P 500 Index +2.9%, Dow +3.0%, Nasdaq +2.7%
Europe: STOXX Europe 600 +2.3%, German DAX +2.9% France CAC 40 +2.0%, U.K. FTSE 100 -1.2%
Asia: Japan Nikkei +1.5%, China Shanghai Composite +1.7%, Korea KOSPI +2.4%
Rates/Commodities: 10-Year Treasury yield +6 basis points to 2.73%, WTI crude oil +1.2%, COMEX gold: +0.35%
Stocks gained for a fourth straight week as major indexes continue to retrace last month’s steep losses, boosted by bank earnings and late-week developments in the U.S.-China trade narrative. Foreign indexes climbed in the week, but lagged their U.S. counterparts. Further stimulus announcements out of China were offset by a historically bad outcome of the U.K’s Parliamentary Brexit vote.
Global equities staged a late-week rally after the Wall Street Journal reported that Treasury Secretary Steve Mnuchin proposed lowering tariffs as an incentive for the Chinese to make a deal when Beijing’s top negotiator comes to Washington at the end of the month for another round of formal talks. The Trump Administration downplayed the news, but stocks sustained their rally after a second round of headlines on Friday suggested the Chinese would significantly ramp up U.S. imports in an effort to eliminate its trade surplus over the next six years. “Trade tensions have rattled markets, and investors are still watching headlines for direction,” said LPL Research Chief Investment Strategist John Lynch. “We still believe the fundamental U.S. economic landscape is compelling, and once trade uncertainty clears, investors will likely focus more on solid economic conditions and corporate earnings growth.”
Strength in the U.S. was buoyed throughout the week by an undercurrent of generally good earnings reports from a series of large financial institutions that included Citi, JP Morgan, Wells Fargo, and Bank of America. As a result, the financials sector outperformed, while defensives like utilities and consumer staples lagged. The continued shift back into equities pushed Treasury yields up—though the yield curve flattened a bit—and weighed on precious metals like gold and silver. On the other hand, industrial metals, which are more closely tied to economic growth expectations, moved mostly higher. Oil prices hit two-month highs on the heels of an OPEC report showing the group is ahead of schedule on production cuts.
In addition to U.S.-China trade headlines, investors in Europe were focused on the U.K’s parliamentary vote to determine whether the country would have a formal agreement in place when it leaves the European Union at the end of March. Prime Minister Theresa May’s deal was overwhelmingly rejected, though she survived a no-confidence vote thereafter to remain in her position and reassess her options. Market reaction was somewhat muted given the gravity of the situation, but the outcome was never really in doubt.