By Stephen Culp
NEW YORK (Reuters) -U.S. stocks advanced on Wednesday and Treasury yields reversed their three-day slide after word of a trade deal between the United States and Japan, while a report of a similar deal with the European Union provided welcome signs of progress in President Donald Trump’s multi-front tariff negotiations.
All three major U.S. stock indexes closed in positive territory ahead of hotly anticipated quarterly reports from Alphabet and Tesla.
Gold prices backed away from a five-week high as risk-on sentiment lured investors away from the safe-haven metal.
Trump reached a trade agreement with Japan with just over a week remaining before an August 1 deadline. The deal spares Japan from bruising new levies on autos and other goods in exchange for a $500 billion package of investment and loans bound for the United States, and stands as the most significant trade deal yet to emerge since Trump’s market-rattling “liberation day” tariff announcement in April.
The European Union and the United States are nearing an agreement on a similar trade deal that would impose 15% tariffs on European imports, while waiving duties on some items, according to officials from the European Commission.
This follows a deal with the Philippines, and raises hopes that more deals could be in the offing.
“The storm clouds parting and the macro situation looks to be improving,” said Sam Stovall, chief investment strategist of CFRA Research in New York. “Japan has signed a trade agreement, fingers are crossed for the EU, and investors are feeling optimistic that either more trade agreements will be announced before the August 1st deadline or postponements will be granted.”
Second-quarter earnings season is underway, with 23% of the companies in the S&P 500 having reported. Of those, 85% have beaten Wall Street expectations, according to LSEG data.
Analysts currently predict year-on-year S&P 500 earnings growth, on aggregate, of 7.5%, marking a solid improvement over the 5.8% growth estimates as of July 1.
High-profile results from Magnificent 7 members Alphabet and Tesla will be closely scrutinized by investors, particularly any forward guidance that might shed light on expenditures and payoffs surrounding Artificial Intelligence (AI).
As major tech and tech-related megacaps post results, Wall Street’s reliance on a small number of momentum stocks will be put to the test.
The Dow Jones Industrial Average rose 507.85 points, or 1.14%, to 45,010.29, the S&P 500 rose 49.35 points, or 0.78%, to 6,358.97 and the Nasdaq Composite rose 127.33 points, or 0.61%, to 21,020.02.
Optimism over a potential U.S.-EU trade deal lifted European shares, with automakers leading the rally. Should the talks fail, the European Union is preparing to unveil retaliatory measures.
MSCI’s gauge of stocks across the globe rose 10.16 points, or 1.09%, to 939.94.
The pan-European STOXX 600 index rose 1.08%, while Europe’s broad FTSEurofirst 300 index rose 23.70 points, or 1.10%.
Emerging market stocks rose 19.23 points, or 1.54%, to 1,267.28. MSCI’s broadest index of Asia-Pacific shares outside Japan closed higher by 1.53%, to 666.81, while Japan’s Nikkei rose 1,396.40 points, or 3.51%, to 41,171.32.
U.S. Treasury yields moved higher after three straight days of declines as trade optimism fueled risk-on sentiment.
The yield on benchmark U.S. 10-year notes rose 5.2 basis points to 4.388%, from 4.336% late on Tuesday.
The 30-year bond yield rose 4.1 basis points to 4.944% from 4.903% late on Tuesday.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5.5 basis points to 3.886%, from 3.831% late on Tuesday.
The dollar eased as the yen gathered strength and the euro inched higher as trade negotiations progressed.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.27% to 97.20, with the euro up 0.18% at $1.1774.
Against the Japanese yen, the dollar weakened 0.1% to 146.48.
In cryptocurrencies, bitcoin fell 1.08% to $118,485.91. Ethereum declined 2.99% to $3,596.61.
Oil prices dropped as trade uncertainties ebbed.
U.S. crude dipped 0.09% to $65.25 per barrel, while Brent settled at $68.51 per barrel, down 0.12% on the day.
Spot gold fell 1.19% to $3,390.12 an ounce. U.S. gold futures fell 1.29% to $3,395.00 an ounce.
(Reporting by Stephen Culp; Additional reporting by Lewis Krauskopf in New York and Tom Wilson in London; Editing by Kirsten Donovan and Nick Zieminski)
