U.S. stocks hit record high as part of China trade deal comes ‘close to finalizing’

The S&P 500 hit a record high on Monday, while the Nasdaq fell just short of its lifetime high touched in late July as a more civil tone between the United States and China lifted hopes for a possible trade deal and investors looked toward a Federal Reserve rate cut later this week.

Microsoft Corp shares climbed 2.46 per cent, making the stock among the biggest boosts to each of three major indexes after the technology giant won the Pentagon’s US$10 billion cloud computing contract, beating out Amazon.com Inc.

READ MORE: U.S. suspends China tariff hike in temporary trade war truce

After rising as much as 0.71 per cent to 3,044.08, the benchmark S&P closed up 0.56 per cent at 3,039.34, topping the record high of 3,025.86 hit on July 26, while the Nasdaq ended the session less than 5 points below its closing high. The Dow Jones Industrial Average ended less than 1 per cent away from its record closing level.

President Donald Trump said on Monday he expected to sign a significant part of a trade deal with China ahead of schedule but did not elaborate on the timing, building on optimism from Friday when Washington said it was “close to finalizing” some parts of a trade deal.

Economic data shows the trade war between the world’s two largest economies has begun to take a toll on both countries, leading to worries about a global slowdown.

Global central banks have responded by easing monetary policy. The Federal Reserve is expected to follow that trend at its two-day policy meeting beginning on Tuesday, with high expectations that it will cut interest rates for a third time this year.

1:23 U.S.-China trade tensions still simmer after deal

“After we finish earnings season and get through this Fed meeting, people will be looking to the trade deal,” said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina. “Importantly, as you watch the economic numbers come in here and globally between now and year end, you want to continue to see incremental positive sequential changes. You want to get some confirmation that in fact growth has bottomed and has started to improve.”

The Dow Jones Industrial Average rose 132.25 points, or 0.49 per cent, to 27,090.31, the S&P 500 gained 16.79 points, or 0.56 per cent, to 3,039.34 and the Nasdaq Composite added 82.87 points, or 1.01 per cent, to 8,325.99.

The outlook for a quarter percentage point cut in U.S. borrowing costs have jumped to 94.1 per cent from 49.2 per cent last month, according to CME Group’s FedWatch tool.

The third-quarter earnings season has managed to ease some concerns related to the impact of trade tensions on corporate profits, with over 78 per cent of the 204 S&P 500 companies that have reported so far surpassing profit expectations, according to Refinitiv data. Still, third-quarter earnings are expected to show a decline of 2 per cent.

2:11 Trump talks what else is covered by China deal, says they hope to finalize by ‘Phase 2’

Investors are waiting for earnings from heavyweights this week such as Apple Inc, Starbucks and Merck & Co Inc.

Chipmakers, which have acted as a proxy for trade tensions with China, gained 1.75 per cent on Monday. The technology, healthcare and communication services sectors gained more than 1% per cent each.

Among other stocks, AT&T Inc rose 4.28 per cent after the U.S. wireless carrier said it would add two new board members and consider selling off up to US$10 billion worth of non-core businesses next year.

READ MORE: Trump says he’s looking for a ‘complete deal’ with China

Tiffany & Co surged 31.63 per cent after Louis Vuitton owner LVMH made a US$120 per share offer to buy the U.S. luxury jeweler.

Advancing issues outnumbered declining ones on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored advancers.

The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 115 new highs and 52 new lows.