May 21, 2018

Dow soars 300 points as US-China trade tensions cool

The trade spat between the United States and China is "on hold," according to Treasury Secretary Steven Mnuchin. But investors weren't on hold Monday. They were buying like there was no tomorrow.

The Dow surged 300 points in early trading, a gain of more than 1%. Nearly all 30 Dow stocks were up and the index even briefly topped 25,000 for the first time in two months.

The S&P 500 and Nasdaq both climbed around 1%, too. So much for selling in May and going away? The Dow is now up more than 3% since the start of the month.

Shares of massive US multinationals Apple, Boeing, Caterpillar, Deere -- all of whom generate a significant percentage of their sales from China -- led the market's move higher.

And chip companies Acacia, Micron and Qualcomm -- which are all suppliers to Chinese telecom and smartphone giant ZTE -- rallied sharply on hopes that the US will now help save ZTE. Just weeks ago, US sanctions led to ZTE to announce it would shut down its operations.

It was a global rally as well. China's Shanghai Composite and the Hang Seng in Hong Kong also enjoyed solid gains Monday, as did stocks on most leading European exchanges.

The clear hope is that the United States and China will reach an eventual deal on trade, one that does not lead to big tariffs on key goods that each nation exports to the other -- such as American agricultural products and Chinese steel and aluminum.

It didn't seem to matter to Wall Street that the can was just being kicked down the road. The mere fact that the US and China seem willing to keep talking was enough to make investors think that a full-blown trade war can be avoided.

"While no great specifics were made on a deal, [Mnuchin's] comment does reduce the potential for trade to be a major bearish influence," said Tom Essaye, founder of The Sevens Report, an investment research firm, in a market newsletter Monday morning.

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