Both the S & P 500 and the Nasdaq Index have closed at record highs after the US finalised a new trade deal with Mexico.
The S & P 500 rose by 0.8% to close at 2,896.74 while the Nasdaq Composite climbed 0.9% to lift it above 8,000 points for the first time on the back of gains across FANG, the giant tech quartet comprising Facebook, Amazon, Netflix and Google (via parent company Alphabet). The Dow Jones Industrial Index was also up 1%, returning to its highest level since February.
S&P 500, Nasdaq hit new highs on U.S.-Mexico trade deal https://t.co/KVGk0JbphL
— Reuters Business (@ReutersBiz) August 27, 2018
The market surge came on the back of the US trade agreement with Mexico. Speaking with Mexican President Peña Nieto at the Oval Office, Trump said the new trade deal would replace NAFTA, which he said saw America get “hurt very badly”.
“It’s an incredible deal,” Trump said of the new United States-Mexico trade agreement. “It’s an incredible deal for both parties. Most importantly, it’s an incredible deal for the workers and for the citizens of both countries.
“Our farmers are going to be so happy. You know, my farmers — the farmers have stuck with me; I said we were going to do this. And Mexico has promised to immediately start purchasing as much farm product as they can. They’re going to work on that very hard.”
A big deal looking good with Mexico!
— Donald J. Trump (@realDonaldTrump) August 27, 2018
Trade deal with Mexico has given markets renewed confidence
Earlier on Twitter, Trump had written: “A big deal looking good with Mexico!”. The agreement still needs to pass through Congress to be implemented.
Vice-President Mike Pence said: “Our nations have agreed to new rules that will maintain duty free access for agricultural goods on both sides of the border. In addition, we have agreed to eliminate non-tariff barriers and take other steps to encourage more agriculture trade between our two countries.”
Pence also said the new trade deal would include enforceable labour standards.
Art Hogan, Chief Market Strategist at B. Riley FBR, told CNBC that uncertainty over a looming trade war has been one of the headwinds buffeting the market recently. “If you were to take trade out of the picture, you would have a smoother ride higher in this market.”
Both the S&P 500 and the Nasdaq closed at all-time highs and the Nasdaq topped 8,000 for the first time after Trump announced a tentative US-Mexico trade deal. The Dow spiked 259 points and finished above 26,000 for the first time since February 1. https://t.co/hTk6i85AuZ pic.twitter.com/99zw8OgxY2
— CNNMoney (@CNNMoney) August 27, 2018
Stocks of Boeing and Caterpillar were up 1.3% and 2.8% on the back of the news. Both are considered important indicators of the health of the market due to their high level of international exposure. One analyst described the S & P 500 as riding a “perfect wave” and forecast the index would keep growing.
The market has also been given greater certainty by comments from Federal Reserve Chairman Jerome Powell on 24 August. Powell confirmed the US central bank would continue to gradually normalise its monetary policy.
The news of the deal with Mexico helped ease concerns over mounting trade tensions. Trump was also bullish on the prospect of a new trade deal with China in his address at the White House.