US stocks rise after signing of 'Phase 1' trade deal

Stocks edged higher in afternoon trading on Wall Street Wednesday after the signing of an initial trade deal between the U.S. and China.

The modest gains had the Dow Jones Industrial Average on track for its first close above 29,000 points.

President Donald Trump and China's chief negotiator, Liu He, signed the “Phase 1" deal before a group of corporate executives and press at the White House Wednesday. The pact eases some sanctions on China. In return, Beijing has agreed to step up its purchases of U.S. farm products and other goods. The initial agreement is a key step toward de-escalating an 18-month long trade conflict between the world’s largest economies.

Both nations will have to deal with some of the more contentious trade issues as they move ahead with negotiations. Punitive tariffs will remain on Chinese goods as talks continue.

“This was telegraphed well enough that the market is kind of looking through it and toward the next phase and what that means," said Keith Buchanan, portfolio manager at Globalt Investments.

Health care stocks accounted for much of the market's gains. Several health insurers rose as investors cheered a solid fourth-quarter earnings report from UnitedHealth Group.

Technology companies also climbed. The sector is reliant on China for sales and supply chains and benefits from better trade relations. Microsoft rose 0.8% and Advanced Micro Devices gained 0.9%.

Homebuilders rose broadly on news that home loan applications surged more than 30% last week from a week earlier.

Banks were broadly lower after Bank of America reported weaker profits. Energy stocks also fell along with the price of crude oil.

With the trade issue entering a new stage, Wall Street is focusing on the rollout of corporate earnings reports over the next few weeks. Earnings have been flat to down for the last three quarters. If the fourth quarter meets expectations, it should be around the same. However, analysts are projecting 2020 corporate earnings growth to jump around 9.5%. Buchanan noted.

“We're expecting a reacceleration in the back end of the year, so any (company) guidance that brings any type of skepticism to that could threaten the recent rally we've had and the gains that we've accrued in the past few months,” he said.

KEEPING SCORE: The S&P 500 index was up 0.1% as of 3:20 p.m. Eastern time. The Dow rose 89 points, or 0.3%, to 29,029, a record high.

The Nasdaq rose less than 0.1%. The Russell 2000 index of smaller company stocks rose 0.4%.

Markets in Europe closed mostly lower.

BOND YIELDS: Bond prices rose. The yield on the 10-year Treasury note fell to 1.78% from 1.81% late Tuesday.

ANALYST’S TAKE: Trade fears have largely subsided and investors are focusing on corporate earnings, especially the picture executives provide for the rest of the year.

“If we hear a better tone this earnings season, more confidence in guidance, that could encourage investors,” said Jeffrey Kleintop, chief global investment strategist at the Schwab Center for Financial Research. “That might even outweigh what the trade deal actually looks like.”

OFF THE MARK: Target slumped 6.8% after a disappointing holiday shopping season prompted the retailer to cut its forecast for a key sales measure in the fourth quarter. The company said weak sales of electronics, toys and home goods crimped sales growth to just 1.4% in November and December.

WANING INTEREST: Bank of America fell 2.2% after reporting a drop in fourth-quarter profits because of the rapid decline of interest rates in late 2019. The bank is particularly impacted by movements in interest rates since it sells a range of consumer banking services, and its balance sheet is more aligned with short-term bonds and other securities.

HEALTHIER RESULTS: UnitedHealth Group rose 2.9% after the nation’s largest health insurer reported surprisingly good fourth-quarter profits. The company covers more than 49 million people and its revenue rose 4% on a mix of insurance premiums and growth from urgent care and surgery centers.

Other health insurers also moved higher. Anthem gained 1.9%, Cigna rose 1.4% and Humana climbed 2.3%.

HOME SWEET HOME: Traders bid up shares in homebuilders after the Mortgage Bankers Association said home loan applications jumped 30.2% last week from a week earlier. The pickup in mortgage applications reflects heightened demand for homes and suggests many buyers are eager to purchase a home now, rather than waiting for the traditional late-February start of the spring homebuying season. Hovnanian Enterprises climbed 4.5%.

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AP Business Writer Damian J. Troise contributed.