Stock Market Update

[BRIEFING.COM] The stock market is responding favorably to new developments in the trade war that have fueled hopes of further de-escalation. The U.S. will drop tariffs on China from 145% to 30% and China will drop tariffs on the U.S. from 125% to 10% for a 90-day period.

The Dow Jones Industrial Average (+2.5%) is more than 1,000 points higher than Friday's close. The S&P 500 shows a 3.0% gain and the Nasdaq Composite is 4.0% higher.

Strong gains are helped by short-covering activity and a fear of missing out on further gains. Just about everything is participating in upside moves. Advancers have a better than 7-to-2 lead over decliners at the NYSE and a 3-to-1 lead at the Nasdaq.

Eight S&P 500 sectors are higher by at least 1.7%. The consumer discretionary (+5.4%), technology (+4.1%), and communication services (+3.2%) sectors lead the pack, reflecting leadership from the mega cap space and chipmakers. 

The risk-on bias has defensive-oriented sectors lagging the broader equity market. The consumer staples (-0.2%) and utilities (-0.3%) sectors are alone in the red.

Even pharmaceutical stocks are trading up despite news that President Trump will sign an executive order that will require the government to adopt a "most favored nation" pricing model for prescription drugs. In brief, the U.S. "will pay the same price as the nation that pays the lowest price anywhere in the world."

CVS (CVS 63.52, -3.45, -5.2%) and Cigna (CI 312.28, -21.32, -6.4%) are left out of the rally after Mr. Trump said the executive order will "cut out" pharmacy benefit managers.

The risk-on skew has also resulted in the selling of Treasuries, the gain in the U.S. Dollar Index (+1.3% to 101.61), a drop in gold prices ($3,227.70, -116.20, -3.5%), and the sharp decline in the CBOE Volatility Index (-14.2% to 18.76).

The 2-yr note yield is up ten basis points to 3.98%, and the 10-yr note yield is up eight basis points to 4.45%.