Stocks jumped out of the gate Monday on reports of productive trade talks between the U.S. and China. The momentum lasted into the close, too, with all three indexes putting a big dent in their year-to-date deficits.
Over the weekend, high-level trade negotiators from the two countries met in Geneva, Switzerland, where they agreed to a 90-day truce that drastically lowers retaliatory tariffs. The U.S. and China will continue trade talks over this period.
This followed news from late last week that the Trump administration had reached a trade agreement with the United Kingdom.
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These developments add to the "cautious optimism" that's been "lurking over the past few weeks among some investors that the Trump administration will soften its approach to trade and as a result will reduce the likelihood of a recession," says Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management.
The reaction to the U.S.-China trade news was swift, with the Dow Jones Industrial Average (+2.8% at 42,410), the S&P 500 (+3.3% at 5,844) and the Nasdaq Composite (+4.4% at 18,708) all closing sharply higher.
The three main indexes have now pared their year-to-date declines to between 0.5% and 3.5% after each being down by double-digit percentage points in early April.
This recovery from the April lows "has been surprising, especially against a macro backdrop riddled with questions over global trade policy," says Adam Turnquist, chief technical strategist for LPL Financial.
And this, he adds, has plenty of folks questioning the sustainability of the bounce, especially amid elevated uncertainty over where tariff rates will eventually land.
Bond yields spike as rate-cut hopes fade
Over in the bond market, Treasury yields spiked as rate-cut expectations plummeted. The 2-year Treasury yield rose 12.1 basis points to 4.004% and the 10-year Treasury yield jumped 9.8 basis points to 4.473%. (A basis point = 0.01%.)
According to CME FedWatch, betting odds for the Fed's next rate cut are now on the central bank's September meeting, with a 51% probability vs a 26% chance one week ago.
Amazon, Nike, Apple rise on U.S.-China trade deal
As for individual equities, Amazon.com (AMZN, +8.1%) and Nike (NKE, +7.3%) were the two best Dow Jones stocks today on expectations they'll see an outsized impact from the China tariff reprieve.
Apple (AAPL, +6.3%) was another outperforming blue chip stock, given the tech giant's heavy exposure to China. Still, the company faces higher tariffs than it did at the start of this year, and it's reportedly considering raising prices on its new iPhones.
NRG stock soars 26% on M&A news
NRG Energy (NRG, +26.2%) was the best S&P 500 stock on Monday after the utility company said it bought several natural gas generation facilities and a virtual power plant from LS Power for $12 billion in cash and stock.
NRG expects the acquisition to start adding to earnings immediately. It will also help reinforce the company's commitment to 7% to 9% annual dividend growth and $1 billion stock buybacks, it said in the press release.
"Assuming approval, the acquisition positions NRG as one of the largest U.S. natural gas generators, providing opportunities to capitalize on rising power demand trends, in our view," says CFRA Research analyst Daniel Rich (Buy).
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