Specialist Gregg Maloney, left, and trader John Panin work on the floor of the New York Stock Exchange, Friday, Dec. 13, 2019. After months of waiting, markets had a muted reaction to news Friday that the US and China had reached an initial deal on trade. (AP Photo/Richard Drew)

Markets have muted reaction to long-awaited China trade deal

December 13, 2019 - 5:31 pm

Wall Street closed out a listless day Friday with tiny gains and more record highs for the S&P 500 and Nasdaq.

The U.S. and China revealed they have reached an initial deal in their long-running trade war. The “Phase 1” agreement means that the U.S. won't impose new tariffs on Chinese goods that had been set to kick in this weekend. Investors’ anxiety over the prospects of such an escalation in the trade war contributed to a sluggish start for the market this month.

President Donald Trump and Chinese officials made separate statements confirming the agreement Friday. Media reports signaling that a deal was close spurred a rally a day earlier that sent the S&P 500 and the Nasdaq to record highs. That likely led to the muted reaction in the markets Friday.

“People obviously were excited about what they heard yesterday and now what you're seeing is a consolidation now that it's actually been confirmed,” said Lisa Erickson, head of the traditional investment group at U.S. Bank Wealth Management.

Technology companies, which rely heavily on China for sales as well as parts, led the gainers Friday, outweighing losses in banks, energy stocks and elsewhere. Bond prices rose, pulling yields lower.

The S&P 500 index added a mere 0.23 points, or less than 0.1%, to reach an all-time high of 3,168.80.

The Dow Jones Industrial Average inched up 3.33 points, or less than 0.1%, to 28,135.38.

The Nasdaq, which is heavily weighted with technology stocks, rose 17.56 points, or 0.2%, to 8,734.88.

The Russell 2000 index of smaller company stocks fell 6.84 points, or 0.4%, to 1,637.98.

Optimism over the possibility of a trade deal helped stocks rebound after a downbeat start to the week. The S&P 500 ended the week with its third straight weekly gain. With less than three weeks left in 2019, the benchmark index is up 26.4% for the year.

The stock indexes were little changed through most of Friday as investors weighed the implications of the trade deal.

The costly trade conflict and the threat it could escalate at any moment has been the biggest source of uncertainty for Wall Street this year. The dispute has also hurt manufacturing around the world and caused U.S. businesses to hold back on making investments. The saving grace for the economy has been a strong job market and consumer spending.

Word that Washington and Beijing were pursuing a limited deal helped allay some of those concerns this fall, which helped spur the market higher after a sharp pullback this summer. But investors grew anxious earlier this month as the Dec. 15 planned rollout of U.S. tariffs on $160 billion worth of Chinese imports neared.

In addition to canceling the new tariffs, the U.S. also agreed to reduce certain existing import taxes on about $112 billion in Chinese goods from 15% to 7.5%. In return, Trump said on Twitter, the Chinese have agreed to "massive” purchases of American farm and manufactured products as part of the initial deal.

It's unclear how much the partial trade deal removes the uncertainty over another escalation in the dispute, which has had more than a few swings since it started 17 months ago.

“We got something, but until we have a full-fledged deal it may be tough to get excited,” said JJ Kinahan, chief market strategist for TD Ameritrade.

The latest development in trade relations didn’t have much of an impact on the market because it is essentially just a tariff truce, according to Jamie Cox, managing partner for Harris Financial Group. The next phase of the agreement will have to tackle some of the larger issues to provide relief from existing tariffs.

“It’s going to be a bigger lift in large part because the president doesn’t really want to take the tariffs off,” Cox said. “That’s going to require much more give on the Chinese part than what is currently in the offer.”

Technology sector stocks were the biggest winners Friday. Adobe climbed 3.9% after its latest quarterly results topped Wall Street’s estimates.

Utilities, household goods makers and real estate stocks also notched gains.

Banks fell the most as bond yields, which are used to set the interest rates that lenders charge on mortgages and other consumer loans, fell. Wells Fargo slid 1.1%.

The yield on the 10-year Treasury dropped to 1.83% from 1.90% late Thursday.

The government said U.S. retail sales rose at a seasonally adjusted 0.2% rate in November. The modest pace fell short of analysts' forecasts for a pickup of 0.5% and suggests the holiday shopping season got off to a slow start. Shares in several department store chains fell. Macy's dropped 3.4%, while L Brands slid 4.2% and Nordstrom lost 3.3%.

Facebook fell 1.3% amid reports that the Federal Trade Commission could block the company from integrating its messaging apps. Facebook has been planning to integrate its messaging apps, including Messenger and What’sApp, since early 2019. Federal regulators are concerned that the plan could make it hard to break up the company should the FTC find that necessary.

British stocks and the British pound moved sharply higher a day after a resounding victory for the Conservative Party eased uncertainty over the nation’s upcoming exit from the European Union. The benchmark FTSE 100 rallied 1.1%. The British pound rose to $1.3339 from $1.3134. Other European markets also closed higher.

Benchmark crude oil rose 89 cents to settle at $60.07 a barrel. Brent crude oil, the international standard, increased $1.02 to close at $65.22 a barrel. Wholesale gasoline rose 3 cents to $1.66 per gallon. Heating oil climbed 4 cents to $1.99 per gallon. Natural gas fell 3 cents to $2.30 per 1,000 cubic feet.

Gold rose $8.90 to $1,475.60 per ounce, silver rose 6 cents to $16.91 per ounce and copper fell 1 cent to $2.78 per pound.

The dollar fell to 109.32 Japanese yen from 109.34 yen on Thursday. The euro strengthened to $1.1121 from $1.1112.

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AP Business Writer Damian J. Troise contributed.

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