Stock market reverses, rallies on trade optimism

From Chris Matthews and Mark DeCambre: Stocks rose sharply Tuesday, extending gains after remarks by Federal Reserve Chairman Jerome Powell were seen by some investors as opening the door to a rate cut. Support was also tied to renewed hopes tensions between the U.S. and its major trading partners would die down.

Key indexes were bouncing back from a loss a day earlier that saw the tech-heavy Nasdaq Composite fall into correction territory on fears of heightened regulatory scrutiny of key companies.

How are stock benchmarks faring?

The Dow Jones Industrial Average DJIA, +1.57%  rose 422.67 points, or 1.7%, to 25,242.45, while the S&P 500 SPX, +1.50%  was up 43.45 points, or 1.6%, to 2,787.90. The Nasdaq Composite COMP, +1.83%  rallied 145.81 points, or 2%, to 7,478.82.

On Monday, the Nasdaq dropped 120.13 points, or 1.6%, to 7,333.02 to finish in correction territory, defined as an index closing at least 10% below its recent peak, which for the Nasdaq was a record finish of 8,164 hit on May 3.

The S&P 500 index shed 7.61 points, or 0.3%, to 2,744.45 while the Dow made a comeback to erase a more than 100-point deficit to edge up 4.74 points to 24,819.78.

What’s driving the market?

Stocks extended gains after Federal Reserve Chairman Jerome Powell told a monetary policy conference on Tuesday that the central bank was monitoring the economic outlook in the face of escalating trade tensions and other factors. The Fed would “act as appropriate” to sustain the economic expansion, Powell said.

Powell’s remarks came after St. Louis Fed President James Bullard on Monday said rate cuts “may be warranted soon” amid U.S.’s international trade disputes.

Analysts also pointed to remarks by China’s Commerce Ministry, which said “differences and frictions” should be resolved through talks, according to news reports.

Data showed U.S. factory orders fell 0.8% in April. Economists surveyed by MarketWatch had forecast a 0.9% fall.

The Nasdaq’s Monday decline was widely blamed on heightened threats that U.S. regulators may reduce the size of tech and social-media companies like Facebook IncFB, +0.69% and Google-parent Alphabet IncGOOG, +1.31%GOOGL, +1.23%  for potential violations of antitrust regulations.

Increased scrutiny directed at some of the key members of the so-called FAANG stocks, which also include Netflix Inc. NFLX, +4.13% and Inc.AMZN, +1.51% comes amid growing worries about slowing economic growth inside and outside the U.S.

Which stocks are in focus?

Shares of Facebook stabilized Tuesday, rising 0.2% after plunging more than 7% a day earlier. Google shares rose 1.4%.

Shares of Uber Technologies IncUBER, +1.18%  were in focus, as Tuesday marks the end of a “quiet period” during which investment banks that underwrote the ride-hailing company’s May 10 initial public offering were unable to comment on the company. Shares erased an early decline to rise 1.6%.

Analysts from SunTrust, BTIG and William Blair initiated coverage of the stockwith buy or outperform recommendations.

Tiffany & CoTIF, +2.87% stock shook off premarket weakness to rise 4.4%, after the luxury jewelry retailer reported a 5% decline in first-quarter same-sales growth.

Shares of Ventas IncVTR, -2.58% fell 2.7%, after the senior housing and health-care properties company said Monday that it was issuing 11 million new shares to the public at $62.75 per share. The stock closed at $64.15 Monday.

Shares of CVS Health CorpCVS, +3.50%  were in focus after the company said it expects its merger with health insurer Aetna will result in more than $300 million in synergies in 2019 and $800 million in 2020. The company said it would outline a series of measures at an investor day later Tuesday aimed at accelerating growth. The stock rose 3.9%.

What are strategists saying?

“The fact that [the] trading relationship between the U.S. and China hasn’t gotten any worse in the past day has lifted investor confidence a little,” said David Madden, market analyst at CMC, in a note. “Mr. Powell said he will ‘act as appropriate’ to sustain economic growth, and dealers viewed that as a sign that we would consider cutting rates should he feel it was required.”

“Equities have been supported by some optimism on the trade front and growing expectations the Fed will come to the rescue and deliver a couple rate cuts this year,” said Edward Moya, senior market analyst at Oanda, in a note. “No material progress was made with trade talks, but not seeing additional fallout was good enough of a reason to provide a bid for risk appetite.”

How are other markets trading?

Stocks in Asia closed mostly lower Monday, with Japan’s Nikkei 225 NIK, -0.01%ending the day flat, while China’s Shanghai Composite Index SHCOMP, -0.96% fell 1% and Hong Kong’s Hang Seng Index HSI, -0.49% lost 0.5%. Stocks in Europe were on the rise, with the Stoxx Europe 600 SXXP, +0.59%  up 0.6%.

In commodities markets, the price of oil CLN19, +0.21% was in retreat, while gold prices GCN19, -0.09% gave up early gains to edge lower. The U.S. dollarDXY, +0.16% meanwhile, fell slightly against a basket of its peers.

The SPDR S&P 500 Trust ETF (SPY) was trading at $279.23 per share on Tuesday afternoon, up $4.66 (+1.70%). Year-to-date, SPY has gained 5.05%.

SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 154 ETFs in the Large Cap Blend ETFs category.

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