The Dow sped toward a triple-digit recovery on Wednesday after Beijing brightened the outlook for US-China trade negotiations following a deluge of bearish developments at the start of the week.
Meanwhile, Federal Reserve interest rate policy questions continue to weigh heavily over the market, and investors will look to both public comments from Fed Chair Jerome Powell and the release of last month’s FOMC minutes for confirmation that the bank will wield its rate scalpel again when the FOMC meets at the end of October.
Dow Zips Back Into Recovery Mode After October Sell-Off
Wall Street’s three major indices suffered a dreadful start to October, but they shifted into recovery mode on Wednesday.
The Dow Jones Industrial Average, which had lost a net 752.79 points during the month’s first six trading sessions, surged 186.88 points or 0.71%. The Dow last traded at 26,350.92.
The S&P 500 jumped 21.31 points or 0.74%, edging back across the 2,900 level to 2,914.37.
The Nasdaq outpaced its fellow indices, climbing 69.83 points or 0.89% to 7,893.61.
Wall Street Rides the Trade War Teeter-Totter
The Dow and its peers snapped back to life on Wednesday after Bloomberg News dropped a report that rekindled optimism that the US and China could agree to an interim trade deal, perhaps even by the conclusion of a new round of high-level negotiations this week.
Citing an unnamed official with direct knowledge of the trade talks, the publication reported that Beijing is open to a limited trade deal on the condition that the US agrees to stop imposing new tariffs on Chinese goods, including two rounds of tariffs scheduled for later this month and December.
In turn, Beijing would “offer non-core concessions like purchases of agricultural products,” concessions that would deal President Trump a political victory, even if they do little to address longstanding disagreements between the US and China.
Hopes for a new trade agreement – and even a partial deal – had waned this week amid rapidly-escalating tensions.
As CCN.com reported, the Trump administration moved to expand its trade blacklist of Chinese companies and public security agencies, threatening the viability of several Chinese tech unicorns. The White House also moved forward with policy discussions designed to restrict American investment in Chinese equities.
China, for its part, had allegedly signaled that it would refuse to negotiate on core US demands. Officials also downplayed their expectations for the trade talks, with some reports stating that they had discussed making their already-brief visit to the US even shorter than planned.
Echoing the sentiment on Wall Street, Bloomberg Opinion’s editorial board published an op-ed admonishing the Trump administration to abandon the delusion that a sweeping trade deal will solve decades-long tensions between the world’s two largest economies. The White House, the editors said, should pursue a tariff truce, “accepting that a small deal is very much better than none.”
Crude Inventories, Fed Minutes Loom Large Over Dow on Oct. 9
Wednesday’s calendar boasts several events that investors will monitor closely.
Crude oil inventories data will be released at 10:30 am ET, with a consensus forecast of 1.8 million barrels.
Next on the agenda are two Federal Reserve-related items, beginning at 11 am ET with Chair Jerome Powell’s remarks at an event hosted by the Kansas City Fed.
On Tuesday, Powell triggered wild volatility in the Dow and other indices. Stocks shot up when he revealed the Fed would start growing its balance sheet, only to lurch back toward their session lows when he clarified that this was “in no sense” quantitative easing.
Markets will be hoping for dovish commentary from Powell, who will be joined by FOMC member Esther George, one of two Fed hawks who have voted against the last two interest rate cuts.
Their public comments will be followed at 2 pm ET by the release of last month’s FOMC meeting minutes. Analysts will scrutinize those minutes for clues about whether the Fed will cut adopt a third consecutive interest rate cut at this month’s policy meeting – and perhaps even again in December.
Right now, fed funds futures imply an overwhelming probability of a rate cut following the October FOMC meeting, as well as a roughly 50% chance of a fourth cut in December.
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