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Stocks surge on Friday to cap off strong week

U.S. stocks jumped Friday and posted weekly gains as optimism for U.S.-China trade progress sparked investors’ risk appetites.

The S&P 500 (^GSPC) rose 1.32%, or 34.75 points, as of market close. The Dow (^DJI) rose 1.38%, or 336.25 points, while the Nasdaq (^IXIC) rose 1.03%, or 72.76 points.

The three major indices each advanced for the week and closed higher for four of the past five trading days. The Dow rose about 2.96%, the S&P 500 rose about 2.86% and the Nasdaq advanced 2.66% for the week.

Stocks jumped on Friday after Bloomberg News reported that China may increase its annual goods imports from the U.S. in order to help reduce the trade imbalance between the two countries. The U.S. trade deficit with China was $323 billion in 2018.

On Thursday, the Wall Street Journal reported that Trump administration officials have contemplated easing tariffs on Chinese products in an effort to bolster financial markets. The report, which cited unnamed officials close to the discussions, initially sent stocks roaring higher Thursday afternoon ET.

However, a spokesperson for the Treasury Department disputed the report, telling Bloomberg News that neither Treasury Secretary Steven Mnuchin nor Trade Representative Robert Lighthizer made recommendations about tariffs or other aspects of the negotiations with China. Stocks have nevertheless held onto gains in early trading as the initial report fueled confidence that the U.S. may take a slightly less hawkish approach to trade negotiations going forward.

China confirmed earlier this week that Vice Premier Liu He, the country’s top trade negotiator, will visit Washington at the end of January for two days of trade talks. This follows three days of mid-level discussions earlier this month between delegations from the U.S. and China in Beijing.

Trade continues to be top of mind for many investors, companies and analysts. According to a public poll Deutsche Bank Wealth Management’s Chief Investment Office, 31% of respondents called the trade war the “most significant threat to global growth in 2019.” This came in ahead of the second-biggest threat, “European politics,” selected by just 19% of respondents.

Earnings season also continues to be a key focus, with 13.3% of the S&P 500’s market capitalization having reported quarterly results. Jonathan Golub, chief U.S. equity strategist for Credit Suisse, noted that earnings are beating by 1.7% so far, with 70% of the reporting companies exceeding their bottom-line estimates. This compares to a 4.9% beat rate for 70% of companies over the past three years.

STOCKS: Netflix 4Q revenue disappoints, Tesla to cut thousands of jobs

Netflix (NFLX) delivered disappointing revenue results for the fourth quarter of 2018, the company reported after-the-bell Thursday. Fourth-quarter revenue was $4.19 billion, falling short of expectations of $4.21 billion, and anticipates current quarter revenue of $4.49 billion, below Wall Street’s estimates of $4.6 billion. Fourth-quarter earnings were 30 cents per share, ahead of the 24-cent consensus estimate. The company reported strong new additions in international markets, bringing on 7.3 million paid customers outside the U.S. in the fourth quarter, versus 1.5 million domestically. Shares of Netflix fell 4% to $ 339.10 each as of market close.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 17, 2019. REUTERS/Brendan McDermid

 

Tesla (TSLA) CEO Elon Musk announced plans to cut Tesla’s workforce by about 7%, constituting about 3,000 workers, according to Bloomberg estimates. Musk wrote in a public blog post that the electric car maker “will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn’t any other way.” Tesla has struggled to meet Wall Street’s production and delivery expectations, and now must contend with a halved U.S. electric vehicle tax credit that had helped incentivize buyers. Shares of Tesla fell about 13% to $302.26 each as of market close.

ECONOMY: Industrial production rose more-than-expected in December

Industrial production rose 0.3% in December, according to a report from the Federal Reserve Friday. This came in ahead of consensus estimates of 0.2% increase, but short of a downwardly revised reading of 0.4% increase in November. Mining production increased 1.5% in December after rising 1.1% in November. However, utility output plunged 6.3% due to December’s warmer-than-usual temperatures.

The better-than-expected rise was fueled by a 1.1% jump in manufacturing output, marking the best performance for the segment since February 2018 and surging past expectations of a 0.3% rise. Manufacturing accounts for 75% of total industrial production, which in turn comprises about 12% of the U.S. economy, according to Bloomberg data.

Total industry capacity utilization, which measures the amount of a plant used, increased to 78.7% in December, the highest in three years. This compares to expectations of a 78.5% increase and a 78.6% increase in November.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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