Economist's Insights

Wednesday’s Trading – Earnings and Economics Drove Early Trading, Trade Talks Took Over Late

Jul 26, 2018

Corporate earnings, economic data, and trade talks all played a part in Wednesday’s market moves. A mix of sector stories netted the S&P 500 a 0.9% gain to 2,846, its highest level since January 29. Technology companies gained 1.5% to lead 10 of 11 sectors higher as investors awaited post-close earnings data from Facebook Inc. Tech’s outperformance lifted the Nasdaq by 1.2% to a new all-time high. Back within the S&P, the consumer discretionary sector added 0.7% but gains were capped by drags from home builders and automakers. An ETF tracking home builders sold off after soft data on new home sales in June (more below). Automakers slipped after GM cut its full-year guidance and before Ford announced its quarterly results. While the S&P 500 had trended positively throughout the day, it soared into the close on reports of positive developments out of the U.S.-EU trade talks.

Early headlines said the EU had agreed to buy more liquefied natural gas and soybeans from the U.S. and address industrial tariffs. In a subsequent joint statement, the parties agreed “to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” President Trump said as part of the process, any further tariffs (think autos) would be tabled and the parties would work to “resolve” those already implemented, by the U.S. on steel and aluminum and by the EU in retaliation. The news also pushed Treasury yields up to close at their highs for the day. The 2-year added 2.4 bps to 2.67% while the 10-year yield reversed a 1-bp drop to close 2.6 bps higher at 2.98%.