Stocks

The Dow Rises 31 Points as Stock Market's Record-Setting Continues

The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average gave up early gains to close near the break-even line. But the Dow still eked out a fresh record.

The Dow hit another fresh record.

Not So Fast. Following Monday’s record highs, all three major stock indexes gave up early gains to close near the break-even line. There was a fresh bout of optimism on U.S.-China trade talks, as the two countries are considering rolling back tariffs as part of the initial trade deal. Oil hit a six-week high, and gold fell to a three-week low. Walgreens Boots Alliance (WBA) stock jumped following reports that the company is in talks with private-equity firms to go private. Uber (UBER) stock hit a record low despite reporting better-than-expected third-quarter earnings on Monday. In today’s After the Bell, we...

New Tariffs and Old Tariffs

All three major indexes reached uncharted territory Monday, but were mostly treading water on Tuesday. The Dow Jones Industrial Average closed up 30.52 points, or 0.11%, to close at 27,492.63, while the S&P 500 slipped 3.65 points, or 0.12%, to finish at 3074.62 and the Nasdaq Composite added 1.48 points, or 0.02%, to close at 8434.68.

U.S. and Chinese officials are actively considering rolling back some existing tariffs—imposed on $112 billion worth of Chinese imports since September—as part of the preliminary trade deal that’s currently under negotiation, The Wall Street Journal reported on Monday, citing people familiar with the talks. The two countries have agreed in principle on what President Donald Trump has called “phase one” of a trade agreement, the paper reported.

The deal was widely expected to deter the additional tariffs on Chinese imports set to go into effect on Dec. 15. With talks now about the removal of existing tariffs, investor sentiment is likely getting more upbeat heading into the deal’s signing. That would likely lead to more Chinese purchases of American farm goods, rules to deter currency manipulation and protect intellectual property, and provisions to open up Chinese markets to U.S. firms.

At its closely watched annual World Oil Outlook (WOO), the Organization of the Petroleum Exporting Countries said Tuesday that the last 12 months have been challenging for energy markets. OPEC revised its forecast for global oil demand growth down to 104.8 million barrels a day by 2024, and 110.6 million barrels a day by 2040. OPEC said its production of crude oil and other liquids is expected to decline over the next five years to 32.8 million barrels a day in 2024, down from 35 million barrels a day in 2019.

Despite the downward revision to forecasts, OPEC expects global oil demand to continue growing at “relatively healthy rates” over the next five years. Oil futures still jumped on Tuesday to their highest settlements in six weeks, lifted by the positive expectations around U.S.-China trade talks. Brent crude gained 1.3% on Tuesday to settle at $62.96 a barrel, while West Texas Intermediate crude rose 1.2% to settle $57.23 a barrel.

Despite the signs of a weakening global economy, the S&P 500 has been hitting new highs lately and is now up more than 20% for the year so. According to LPL Financial senior market strategist Ryan Detrick: “A good year tends to see continued strong performance in the final two months of the year.”

Since 1950, when the S&P 500 has been up 20% or more for the year heading into November, stocks have never dropped in November, while December also has tended to see a strong upward bias, wrote Detrick in a Tuesday note. In such cases, the S&P 500 was up an average of 6.2% during the final two months of the year. “This phenomenon could be due to portfolio managers buying to play catch-up, or it could be that an object in motion stays in motion, as Newton noted more than 300 years ago,” wrote Detrick.

Brad McMillan of Commonwealth Financial Network also believes that positive trends are likely to continue heading into the end of 2019. “The jobs report came in much better than expected, and measures of business confidence both rebounded in a material way,” he wrote on Tuesday. “Positive earnings surprises are also likely to further improve the corporate fundamentals. And the seasonal factors have turned from negative, for October, to positive, as markets tend to rally toward the end of the year.”

Among the downside risks to watch, says McMillan, are the impeachment process against Trump and further developments in the trade war. “Even if we do get these kinds of shocks, however, the stabilization of the fundamentals, both economic and corporate, should provide a cushion to any volatility,” he wrote.

Write to Evie Liu at evie.liu@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.