Stocks climb on optimism over U.S.-China trade talks

/ CBS/AP

What's behind recent stock market volatility

New York – U.S. stocks traded higher Tuesday with industrial and internet companies rising, and the S&P 500 index is on track for its first three-day winning streak since November.

The latest round of trade talks between the U.S. and China ended without word of progress, but with no evident signs of setbacks either.

Talks with China are going very well!

— Donald J. Trump (@realDonaldTrump) January 8, 2019

Railroad operator Union Pacific jumped after it named an industry veteran to a top executive position. AutoNation fell after predicting a weak year for auto sales.

As of 3:25 p.m. Eastern, the S&P 500 index rose 22 points, or 0.9 percent, to 2,572. The Dow Jones industrials picked up 256 points, or 1.1 percent, to 23,788. Early in Tuesday's trading, the Dow jumped as much as 333 points.

The Nasdaq composite gained 68 points, or 1 percent, to 6,894. The Russell 2000 index of smaller-company stocks added 16 points, or 1.1 percent, to 1,421.

There was no evidence Tuesday that the U.S. and China made significant progress in their latest round of trade talks, and experts say it will take months for them to resolve the causes of the trade war, which include disagreements over Beijing's handling of technology and intellectual property.

But investors have become notably more optimistic about an eventual deal, a sharp reversal of the concerns that helped send stocks plunging in October and December. An agreement between the two biggest economic powers in the world could remove a major obstacle to global economic growth.

Kate Warne, an investment strategist for Edward Jones, said the market's large moves reflect investors' questions about major issues including economic growth, the threats of recession and trade tensions, and rising interest rates. She said it's normal for stocks to change course as traders grapple with those issues on a day-to-day basis.

"You have new information that's driving stock prices both higher and lower, and that's pretty typical when there's uncertainty and there's a lot of new information coming into the market," she said.

Warne added that trading on Wall Street is typically light during the holidays, and that can exaggerate market moves up or down.

Wells Fargo Investment Institute expects the U.S.-China trade talks will continue to be a focus for investors. "Since formal talks have only just begun, we expect this trade-related narrative to remain with the markets for some time," the firm said in a report. "That said, we expect risks related to tariff escalation to remain contained so long as talks remain productive and progressive."

Oil prices also continued to rally. U.S. crude was on track to rise for the eighth day in the last nine and jumped 2.3 percent to $49.62 per barrel in New York. Brent crude, used to price international oils, was up 1.7 percent to $58.33 a barrel in London.

U.S. crude dropped from $76 a barrel in early October to about $42 a barrel on Dec. 24 as investors worried about slowing economic growth and a supply glut. The modest recovery in oil prices has helped energy company stocks after they took big losses at the end of 2018.

South Korean smartphone and computer chip maker Samsung said demand for chips is weak because the global economy is slowing. The company expects its fourth-quarter sales to drop 11 percent compared to a year ago and said its operating profit will fall as well. Samsung also said its phones are facing stiffer competition, and its stock fell 1.7 percent in Seoul.

U.S. chipmakers, Nvidia and Applied Materials also fell.

Tech stocks were roiled on Thursday after Apple said iPhone sales in China were falling.

Bond prices fell and yields rose, a sign investors expect continued economic growth and higher interest rates. The yield on the 10-year Treasury note rose to 2.71 percent from 2.65 percent late Monday.

Higher interest rates allow banks to make bigger profits on lending, but despite the increase Tuesday, banks stocks declined. Investors may have been preparing for future disappointment: Analysts for Goldman Sachs lowered their forecasts for bond yields around the world because of weakening economic growth and tightening financial conditions. The yield on the 10-year Treasury note has fallen sharply since October, when it reached a seven-year high, and the report said yields "may have peaked for this [economic] cycle."

First published on January 8, 2019

© 2019 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.

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