Dow Trims Gain as Rally in Tech, Internet Stocks Take a Breather

U.S. stock benchmarks were mostly higher on Wednesday, but a rally in technology and internet shares that had helped to drive the Nasdaq to back-to-back record closes paused somewhat as investors follow negotiations between Washington and key trade partners.

What are the markets doing?

The Dow Jones Industrial Average DJIA rose 95 points, or 0.4%, to 24,892, while the S&P 500 SPX added 2 points, or less than 0.1%, at 2,751, while the Nasdaq Composite Index COMP retreated, giving up earlier gains to trade off 3 points, or less than 0.1%, at 7,633.

The small cap-oriented Russell 2000 index RUT which has outperformed its larger peers, extended its march higher, up 0.1% at 1,667.

On Tuesday, the Dow finished down less than 0.1% at 24,799.98, while the S&P 500 index rose less than 0.1% to 2,748.79. The Nasdaq advanced 0.4% to 7,637.86, marking a second record close and the third consecutive advance for the tech-laden equity gauge.

What is driving the market?

Investors on alert for developments on the trade front may have gotten signs of a thaw after Treasury Secretary Steven Mnuchin reportedly urged President Donald Trump to exempt Canada from metals tariffs at a meeting Tuesday. That adds to a report Wednesday that China had offered to buy some $70 billion of U.S. goods to get the Trump administration to cool its tariff threats.

Tensions are still simmering, however, after Mexico revealed which U.S. products it is targeting for import tariffs—around $3 billion for goods including apples and bourbon—in retaliation for U.S. duties on Mexican steel and aluminum.

Leaders of the Group of Seven nations will likely discuss trade as they hold talks in Canada on Friday and Saturday. Tension between the U.S. and the six other members is expected, given the hostile reactions to tariffs imposed by the Trump administration.

Gains for technology stocks have been driven by the belief among some that sector heavyweights such as Netflix Inc. NFLX and Apple Inc. AAPL could weather an economic pullback, if that happens.

Meanwhile, gains in financials, notably shares of JPMorgan Chase & Co. JPM and Goldman Sachs Group Inc. GS were being driven partly by a rise in the yield of the benchmark 10-year Treasury note TMUBMUSD10Y to 2.96% from 2.917% late Tuesday in New York. Yields rise as bond prices fall and climbing rates are generally bullish for banks’ business models.

Meanwhile, some market observers were worried that investor complacency may be setting in, after the Cboe Volatility Index VIX hit its lowest level since late January on Tuesday, falling 2.7% to 12.40. On Wednesday, the VIX was at 12.25, off 1.4% and down nearly 10% in the first three sessions of the week.

What are strategists saying?

Investors are breathing a little easier after signs of an effort on the trade front, said Konstantinos Anthis, head of research at ADS Securities, in reference to the reports about Mnuchin’s Canada request and China’s olive branch over U.S. goods.

“This news points toward an easing of geopolitical risks which paints a positive outlook for global growth and investors are jumping into the fray to benefit from this positive tilt in risk sentiment,” said Anthis, in a note to clients.

“With the U.S. trade data released this afternoon, there is a certain weariness of the potential impact Donald Trump will have upon risk sentiment given his propensity to tweet around such events. With China attempting to stifle U.S. tariffs, we are clearly at a crucial juncture for global trade, despite the relative optimism seen throughout global financial markets,” said Joshua Mahony, market analyst at IG, in a note.

What’s on the economic calendar?

The U.S. trade deficit shrank 2.1% in April—before the Trump tariffs took effect—and tumbled to a seven-month low. But the gap is still on track to widen in 2018 to the highest level in a decade.

Meanwhile, the productivity of American businesses rose at a revised 0.4% annual pace in the first quarter instead of 0.7% as originally reported. Output—or goods and services produced—climbed 2.7% instead of 2.8%, while unit-labor costs, or how much it costs to make each product, rose by 2.9%, a bit higher than the preliminary 2.7% estimate, the government said Wednesday.

Which stocks are in focus?

Tesla Inc. TSLA shares rose 5.1% after Chief Executive Elon Musk told shareholders that the electric-car maker was “quite likely” to meet its production goal of 5,000 Model 3 cars a week.

UnitedHealth Group Inc. UNH shares rose 0.4% after the health-care company raised its quarterly dividend by 20%.

Facebook Inc. FB shares fell 1.1% after the social-media giant confirmed it had shared user data with at least four Chinese tech companies. U.S. officials have warned that devices from one of those companies—Huawei Technologies Co.—could be exploited for state-sponsored spying.

Twitter Inc. TWTR shares fell 0.2% after announcing plans for an $1 billion convertible debt offering.

Signet Jewelers Ltd. shares SIG surged 15% after the company beat estimates for its fiscal first quarter to May 5.

Shares of Axovant Sciences Ltd. AXON soared nearly 117%, after Oxford BioMedica PLC OXB said it has entered an $842.5 million licensing agreement for OXB-102, a gene therapy treatment for Parkinson’s disease.

Athenahealth Inc. ATHN said Wednesday it has begun exploring “strategic alternatives,” in which the hospital and ambulatory-services company will consider a sale, merger or other transaction. Shares of the company rose 4.9%.

Article originally published by Barbara Kollmeyer and Mark DeCambre at marketwatch.com