Stocks Soar On Trade And Rate Cut Optimism

Stocks closed sharply higher yesterday with all of the major indexes surging out of the gate.

Optimism over the next round of trade talks when China comes to Washington in September buoyed the market.

This was further underscored by the administration's 90-day extension for Huawei and U.S. tech companies to do business.

Monday's deadline, had it not been extended, would have forbidden U.S. tech sales to China's Huawei. This would have hurt Huawei, but also U.S. companies that supply products to Huawei, and U.S. companies that actually use Huawei in their internet and wireless networks. The extension is supposed to give all of the companies involved time to make other arrangements.

Of course, this is also being dangled in front of China ahead of the next trade talks. President Trump has linked Huawei to a trade deal. And the reprieve was a strategic move to create an amicable enough environment before the U.S. and China meet again at the negotiating table.

The market also appears to recognize it overreacted to the temporary yield curve inversion last week. Everybody went bananas once the 10-year yield dipped below the 2-year. And everybody began talking about a recession. (Not us.)

But then cooler heads prevailed (most notably former Fed Chair Janet Yellen), explaining that there were a number of factors other than market expectations causing the yield curve to invert. And that there's no threat of a recession at this time.

Traders are also bullish on the prospect of the Fed cutting rates again when they meet on September 17^th and 18^th. The odds are currently at 74% that we'll another rate cut, with more and more people speculating that it could be 50 basis points this time.

Either way, that's very bullish for the U.S. economy.

And so is the rush from other central banks around the world to cut interest rates and pump stimulus into their economies.

Because of this, U.S growth rates and global growth rates are expected to rise, which should send stocks to new all-time highs.

So make sure you're taking full advantage of this record bull market.

See you tomorrow,

Kevin Matras

Executive Vice President, Zacks Investment Research

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