Market Snapshot: Dow gains 170 points as trade fears take a back seat to economic optimism

U.S. stocks traded firmly higher Thursday, resuming a recent uptrend that had been interrupted on Wednesday by a fresh intensification of tariff and political disputes between Washington and the rest of the developed world. However, upbeat data and signs that the U.S. and China, the two biggest economies in the world, are open to resolving their differences has helped to refresh some appetite for assets perceived as risky.

What are markets doing?

The Dow Jones Industrial Average DJIA, +0.67% rose 173 points, or 0.7%, to 24,872, while the S&P 500 index SPX, +0.52%  gained 14 points, or 0.5%, to 2,787. The Nasdaq Composite Index COMP, +0.77% rose 50 points, or 0.7%, to 7,767.

The gains come after a selloff on Wednesday, when U.S. stocks snapped a four-session winning streak as the Trump administration announced plans to impose another round of tariffs on Chinese goods. The Dow ended 0.9% lower, while the S&P  fell 0.7% and the Nasdaq Composite Index  shed 0.6%. Still, all three benchmarks are on pace to rise for five of the past six sessions.

What is driving the market?

The trading mood on Thursday morning may have been getting a boost from signs the U.S. and China are willing to resume trade talks, which could end up in a bilateral agreement. Bloomberg reported late Wednesday that officials from both countries have raised the prospects of restarting a conversation at a high level.

Fears of a full-blown trade war possibly developing between the world’s two largest economies have weighed on equities around the globe in recent months, although analysts have pointed out that markets have remained somewhat resilient.

Meanwhile, the U.S. consumer-price index increased 0.1% in June. Core CPI, minus volatile food and energy, rose 0.2% on the month. Moreover, the 12-month gain for CPI rose to a 6-yr high of 2.9%, reflecting a U.S. economy that is running hotter than anytime since the 2007-09 recession.

A reading of weekly initial jobless claims showed a fall of 18,000 to 214,000 in first week of July, back toward the lowest levels in almost 50 years.

Economists polled by MarketWatch expect consumer prices to have risen 0.2% month-on-month in June.

A strong reading could further strengthen speculation the Fed will raise rates two more times this year, bringing the total to four hikes in 2018.

What are strategists saying?

“Beyond the more volatile subcategories, the overall picture is one in which just about every facet of the economy is starting to generate price pressures. There will still be monthly fluctuations here, but by and large the distribution of price increases is more balanced than it has been in a long time. That’s good evidence that strong economic performance will over time push broad prices higher,” wrote Eric Winograd, senior economist at AllianceBernstein in a Thursday note.

“U.S. futures and European markets are trading higher on the back of the hopes that the trade talks between China and the U.S. would resume soon at a higher level,” said Naeem Aslam, chief market analyst at Think Markets, in a note.

“The hope is that China and U.S. would be able to resolve this matter through bilateral agreement. But uncertainty around this matter has anchored up. The sad aspect is none of the parties are ready to throw in the towel yet, which makes me think that there is no resolution in sight,” he added.

What’s on the economic calendar?

At 10:30 a.m. Eastern, Philadelphia Fed President Patrick Harker is due to take part in a discussion at an event in Idaho, and the Treasury Department is slated release its June figures on the federal budget for June at 2 p.m. Eastern.

See: MarketWatch’s Economic Calendar

Stock movers

Shares in software company CA Inc. CA, +18.17%  rallied 18% trade after chip giant Broadcom Inc. AVGO, -16.00%  confirmed late Wednesday it has agreed to take over the software company for $44.50 a share. Broadcom shares were down about 17%.

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