Risk-on revelers rejoice as US-China reach a deal

The S&P 500 index hit its highest level since early March on Monday as a crucial US-China agreement to slash tariffs put investors at ease after weeks of uncertainty around the future of global trade.

The US will cut extra tariffs it imposed on Chinese imports in April this year to 30% from 145% and Chinese duties on US imports will fall to 10% from 125%, the two countries said on Monday. The new measures are effective for 90 days.

With this, the Dow rallied 2.8%, the SPX jumped more than 3%, and the Nasdaq surged more than 4%.

Nearly all S&P 500 sectors ended green with consumer discretionary, up more than 5.5%, and tech, up more than 4.5%, posting the biggest jumps.

Under the surface, transports and chips were especially strong with both surging around 7%.

Amid the risk-on sentiment and waning uncertainty, defensive sectors lagged. Real estate and staples ended just above flat. Utilities finished red.

The CBOE market volatility index fell below 19.00, and is on pace for its lowest close since March 25.

And gold stocks lost some luster. The HUI slid more than 8%.

Meanwhile, on the charts, the three major indexes ended back above their 200-day moving averages (DMA).

It was the Dow’s first close above this closely followed long-term moving average since April 2. It was the S&P 500’s first close above its 200-DMA since March 25, and the Nasdaq ended above its 200-DMA for the first time since March 5.

With Monday’s strength, the SPX is now only down 4.88% from its February 19 record close. The Dow is down 5.78% from its December 4 record finish, and the Nasdaq is down 7.26% from its December 16 record close.

On April 8, the cycle closing lows, these indexes finished down 18.9%, 16.4%, and 24.3% from their record closes.

In any event, the latest read on consumer prices is due on Tuesday. Expectations call for April month-over-month headline CPI to heat up to 0.3% from -0.1% last month.

(Terence Gabriel is a Reuters market analyst. The views expressed are his own.)