Wall Street has surged and the S&P 500 approached a record high after Washington rekindled trade talks with Beijing, boosting sentiment along with growing investor confidence that the Fed will cut interest rates this year.
US President Donald Trump said he would meet with Chinese President Xi Jinping at the G20 summit later this month, and said talks between the two countries would restart after a recent lull.
Global stock markets have rallied and retreated repeatedly in recent months in reaction to comments from Trump about progress – or lack of progress – in negotiating an end to the trade conflict.
Trump’s statement on Tuesday pushed trade-sensitive industrials up 1.9 per cent and technology stocks gained 1.7 per cent. Together, they were the biggest boost to the benchmark index.
Chip companies, which have a sizeable revenue exposure to China, led the rally in tech stocks, with the Philadelphia Semiconductor index surging 4.3 per cent.
King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco, said it was not yet clear how the trade dispute would play out.
“We can’t discount how big a deal it is for China and the US not to go into a prolonged trade spat. I don’t think we’re out of the woods yet, though,” he said.
“I’d wait for the G20 meeting to see actual discussions coming out of that before we go back into a risk-on mode.”
The US-China trade war and its impact on economic growth have investors increasingly expecting the Federal Reserve will cut rates to preserve the US economic expansion, which would be the longest on record this summer.
The Fed is widely expected to leave interest rates unchanged at its two-day policy meeting that ends Wednesday, while laying the foundation for a cut later this year.
The Fed is scheduled to release its statement at 2pm local time on Wednesday and Chairman Jerome Powell will hold a press conference shortly after.
The S&P 500 has gained 6 per cent so far this month, and is only about 1 per cent from the all-time high hit in early May.
The Dow Jones Industrial Average jumped 1.35 per cent to end at 26,465.54 points, while the S&P 500 gained 0.97 per cent to 2,917.75.
The Nasdaq Composite surged 1.39 per cent to 7953.88.
Comments by European Central Bank President Mario Draghi indicating the possibility of fresh rate cuts or asset purchases also lifted sentiment.
Apple, Amazon and Microsoft rose between 0.8 per cent and 2.4 per cent, with the tech triumvirate contributing more than any other stocks to increases in the S&P 500 and Nasdaq.
Boeing jumped 5.4 per cent, buoying the Dow, after the planemaker received an order for its 737 MAX jets valued at more than $US24 billion at list prices; the 737 MAX has been grounded since March after two deadly crashes.
The utilities, real estate and consumer staples sectors, all of which are viewed as defensive, were the only decliners.
With about two weeks left in the second quarter, analysts on average expect second-quarter S&P 500 earnings per share to increase by 0.2 per cent, according to IBES data from Refinitiv. In early April, that estimate stood at 2.8 per cent growth.
The S&P 500 posted 57 new 52-week highs and one new low; the Nasdaq Composite recorded 85 new highs and 46 new lows.
Volume on US exchanges was 7 billion shares, compared to the 6.8 billion average for the full session over the last 20 trading days.