Stocks Recover: Nasdaq Cracks 7,000 as China Pledges More Stimulus

January 15, 2019 10:43 UTC

U.S. stocks broke out Tuesday morning, led by a sharp recovery in the tech-heavy Nasdaq after China pledged more stimulus measures to help reverse a moribund economy.

Stocks Rise, Nasdaq Hits Milestone

Wall Street’s major indexes were back on solid footing Tuesday morning after posting their first back-to-back losses of the year. The broad S&P 500 Index jumped 0.9% to 2,605.03, led by a sharp recovery in communication services and information technology shares.

Surging tech shares lifted the Nasdaq Composite Index back above 7,000 for the first time in a month. The technology-focused average reached a session high of 7,005.47. It currently trades at 6,986.46, having gained 1.2%.

The Nasdaq rose sharply during mid-morning trading on Tuesday.

Dow industrials also rose sharply, gaining 118 points, or 0.5%, to 24,021. Dow futures traded sideways ahead of the opening bell, which resulted in a weak start to the session Tuesday morning.

The CBOE Volatility Index, commonly known as the VIX, tracked lower Tuesday morning. The so-called “fear index” is presently down 2.2% at 18.65 on a scale of 1-100 where 20 represents the historical average.

China: Fiscal Policy to the Rescue

The Chinese government has announced a coordinated plan to stimulate economic growth after the latest batch of trade figures cast a dark shadow over the world’s second-largest economy. The People’s Bank of China (PBOC) has not only pledged to make monetary policy more forward-looking but has also announced plans to keep liquidity “reasonably ample.”

The Chinese economy is embarking on a generational transition away from traditional smokestack industries toward consumption and growth.

China’s finance ministry is also planning to cut taxes and boost government spending this year. This includes lowering value-added tax rates on select companies and offering rebates to others. These combined efforts are intended to lower the burden on smaller companies, especially those with exposure to manufacturing.

Beijing’s National Development and Reform Commission (NDRC) on Tuesday was the latest body to throw its weight behind the stimulus drive. The NDRC says it aims to achieve “a good start in the first quarter,” including adjusting its economic policies.

Earlier this week, the Chinese government said exports declined in December at the fastest rate in two years, while imports fell at the fastest clip since mid-2016.

While the latest stimulus measures are unlikely to alter China’s trajectory – i.e., an economy transitioning away from traditional smokestack industries toward growth – they could ward off a deeper economic slump and stabilize stock markets following a volatile fourth quarter.

Featured image courtesy of Shutterstock. Chart via TradingView.

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