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S&P 500 closes at new record, buoyed by U.S.-China trade truce

Trump talks U.S.-China trade war at G20 summit

The S&P 500 index closed at a record high on Monday, starting July with a bang, as Wall Street applauded a cease-fire in the U.S. trade war with China.

The S&P 500 rose 0.8%, reaching an all-time high of 2,964. The Dow Jones Industrial Average also rose, climbing 0.4% to 26,717 on Monday, slightly below its record high of 26,828 set in October. 

Investors snapped up riskier holdings as the world's two biggest economies agreed to continue trade talks. The U.S. agreed to hold off on imposing new tariffs on $300 billion in Chinese goods, although existing tariffs on $250 billion of imports remain in place.

"After the worst fourth quarter since the Financial Crisis and worst December since the Great Depression, stocks have come roaring back" in 2019, wrote Ryan Detrick, senior market strategist for LPL Financial, in a Monday research report. The S&P 500 has had "its best start to a year since 1997 and eighth-best start since 1950."

Technology stocks and banks led the gains. Traders turned their backs on more defensive holdings, pushing bond and gold prices lower. Utilities lagged the market in another sign that Wall Street had a bigger appetite for risk.

Chipmakers rallied on plans by the U.S. to loosen some sales restrictions to Chinese telecommunications company Huawei. Broadcom rose 3.3% and Micron Technology gained 4.4%. Technology giants Apple and Microsoft also helped lead gains.

Financial stocks

Financial stocks helped lead the broader market higher. Bank of America rose 1.1% and JPMorgan Chase gained 1.3%. Consumer product makers and other consumer companies also rose. Many of those companies, including Nike, have much to gain or lose in the ongoing trade dispute.

Oil prices edged higher, giving energy stocks a small boost as OPEC considers extending production cuts.

Wall Street just finished its best month since January and that helped push the S&P 500 index to a 3.8% second quarter gain. The index is now up more than 18% heading into the second half of 2019.

More volatility?

The gains in the first half of the year were marked by months of volatile trading as investors rode the ups and downs of the trade war. That volatility is unlikely to fade as the U.S. and China head into yet another round of trade talks.

"This great start to 2019 was nice for investors, but the second half of the year could be a bumpy ride, and we believe stocks may finish the year only a few percentage points from where they are currently," LPL's Detrick wrote.

The market had a similar bounce back in December when both sides agreed to more talks and negotiations seemed on track. That rally quickly faded as investors complained the agreement didn't resolve the core issues in the dispute.

The key difference this time around is the Federal Reserve. In December, the Fed spooked investors by raising interest rates for the seventh time in two years. Now, the central bank has said it is willing to cut rates in order to shore up the U.S. economy if the trade war crimps growth in what is now the longest economic expansion in U.S. history.

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