S&P 500 hits record high on hopes of trade deal, rate cut

Technology stocks pushed the benchmark S&P 500 index to an all-time high and the Nasdaq close to its record level, as a possible U.S.-China trade deal and rising bets on a third rate cut by the Federal Reserve fuelled optimism.

Shares of Microsoft Corp. gained more than two per cent and provided the biggest boost to all three main indexes after the technology giant won the Pentagon’s $10 billion cloud computing contract, beating Inc.

The S&P 500 rose as much as 0.7 per cent to 3,044.08, breaching the record level hit in July, while the Nasdaq was less than 0.5 per cent below its all-time high. The Dow Jones Industrial Average was more than 1 per cent away from its life high.

“We are going to maybe trade up a little bit higher in the short term and (pull back) after the earnings season and the rate cut,” said Robert Pavlik, senior portfolio manager at SlateStone Wealth LLC in New York.

U.S. President Donald Trump said on Monday he expected to sign a significant part of the trade deal with China ahead of schedule but did not elaborate on the timing.

That added to Friday’s optimism when Washington said it was “close to finalizing” some parts of a trade agreement with China.

The news comes as a relief to investors who have been reeling from the impact of the trade war and its fallout on the domestic economy.

U.S. Federal Reserve expected to cut interest rates

Adding to the upbeat mood, the Fed is expected to widely cut interest rates at its two-day policy meeting, which ends on Wednesday.

The odds for a quarter percentage point cut in U.S. borrowing costs have jumped to 94 per cent from 49 per cent last month, according to CME Group’s FedWatch tool.

“One of the reasons they are cutting interest rates is not because they are trying to get ahead of a slowdown but because they are worried about the impact of the trade and tariff issues,” Pavlik said.

The third-quarter earnings season has managed to ease some concerns related to the impact of the trade tensions on Corporate America, with over 78 per cent of the 204 S&P 500 companies that have reported so far surpassing profit expectations, according to Refinitiv data.

Earnings for S&P 500 companies are expected to fall 2 per cent, but excluding the energy sector, they are forecast to rise 0.5 per cent.

Investors are now waiting for earnings from heavyweights this week, including Apple Inc, Alphabet Inc and Merck & Co Inc.

At 11:19 a.m., ET the Dow Jones Industrial Average was up 107.46 points, or 0.40 per cent, at 27,065.52, the S&P 500 was up 15.54 points, or 0.51 per cent, at 3,038.09 and the Nasdaq Composite was up 67.92 points, or 0.82 per cent, at 8,311.04.

Canada’s main stock index, the S&P 500/TSX Composite, was up 26.01 or 0.16 per cent around noon Monday.

Among other stocks, AT&T Inc rose about 5 per cent after the U.S. wireless carrier said it would add two new board members and consider selling off up to $10 billion worth of non-core businesses next year.

Tiffany & Co surged about 31 per cent after Louis Vuitton owner LVMH made a $120 per share offer to buy the U.S. luxury jeweler.

Spotify Technology SA jumped about 16 per cent after the music streaming company posted a surprise quarterly profit and beat revenue estimates.

Advancing issues outnumbered decliners by a 1.54-to-1 ratio on the NYSE and a 2.17-to-1 ratio on the Nasdaq.

The S&P index recorded 37 new 52-week highs and no new lows, while the Nasdaq recorded 96 new highs and 26 new lows.

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