The Dow and broader U.S. stock market shot higher on Thursday, as investors bought into the rumor that the United States and China will resume trade talks shortly.
All of Wall Street’s major indexes reported big gains, mirroring a strong pre-market for Dow futures. The Dow Jones Industrial Average led the market higher, surging 326.15 points, or 1.3%, to 26,362.25.
The broad S&P 500 Index of large-cap stocks rallied 1.3% to 2,924.58, with ten of 11 sectors reporting gains. Technology, industrials, and communication services all outperformed the benchmark.
The technology-laden Nasdaq Composite jumped 1.5% to close at 7,973.39.
Equity markets were bolstered by news that China’s Commerce Ministry was in talks with U.S. officials to resume trade talks as early as September. China’s Foreign Ministry later said it was “not aware ” of such conversations.
Regardless of whether both sides return to the negotiating table, a trade deal is highly unlikely anytime soon. With the U.S. economy hanging on for dear life, President Trump will use the impasse to bolster his re-election bid.
Trump has simultaneously claimed that the U.S. economy is the strongest in history and that we need additional rate cuts (with a side of quantitative easing, no less).
Cutting rates when the economy is strong goes against virtually every economic orthodoxy we’ve been taught.
In any case, Trump’s wish for additional stimulus has already been granted. The Federal Reserve has not only abandoned quantitative tightening but has charted a new path to lower interest rates. Fed Fund futures imply a nearly 96% likelihood of a second interest rate cut in September.