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Dow rises for eighth straight week, S&P 500 posts 2.5% weekly advance

U.S. stocks rallied Friday to solidify another week of gains.

The S&P 500 (^GSPC) rose 1.09%, or 29.86 points, as of market close and ended the week 2.5% higher. The Dow (^DJI) rose 1.75%, or 444.33 points, while the Nasdaq (^IXIC) rose 0.61%, or 45.46 points on Friday. The Dow and the Nasdaq each logged an eighth consecutive week of gains, while the S&P 500 ended higher for a third straight week.

Positive trade headlines helped provide a boost to equities.

According to China’s Xinhua News Agency, Chinese President Xi Jinping said that U.S.-China trade negotiations will continue in Washington next week following a round of discussions in Beijing this week, which involved U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer. Both sides are trying to reach a deal before the rate on tariffs on billions of dollars-worth of Chinese goods is set to increase March 2. President Donald Trump, however, has recently suggested he would consider extending this deadline as trade talks continue.

Elsewhere in Washington, congressional negotiators managed to avert another partial government shutdown after Trump signed a funding bill to provide appropriations for a host of government agencies. The agreement, however, includes funds for Trump’s proposed border wall short of the $5.7 billion he had been demanding. Trump on Friday also authorized a national emergency, allowing him to redirect funds to the wall.

Corporate earnings also continue to stimulate the stock market, with about 85% of the S&P 500’s market capitalization having reported fourth quarter results as of Friday morning. Earnings are beating by 3.3%, with 63% of companies surpassing their bottom-line estimates, Jonathan Golub, Credit Suisse chief U.S. equity strategist, wrote in an email. This compares to 4.9% and 70% over the past three years.

Golub added the Energy sector is projected to deliver the largest earnings per share growth of the major sectors. “4Q earnings came in above expectations for Oilfield Services on higher North American fracking activity and overseas demand,” he said.

The Energy sector was a leader in the S&P 500 as of market close Thursday, posting year-to-date gains of 12.79%, just under 3 percentage points behind the top outperforming Industrials sector. This compares to the calendar year 2018, when the Energy sector was a laggard amid a precipitous drop in oil prices during the fourth quarter.

While a majority of the S&P 500’s market capitalization has reported results, investors still have brick-and-mortar retail earnings to look forward to over the next two weeks. Online selling has continued to pressure traditional retailers, with department stores, apparel and electronics experiencing margin headwinds, Golub noted.

These retail results come following a Census Bureau report that U.S. retail sales in December dropped the most since September 2009. The results had sent the three major indices tumbling Thursday.

STOCKS: PepsiCo delivers weak guidance

PepsiCo (PEP) reported fourth-quarter results that were roughly in-line with analyst expectations. The food and beverage giant posted adjusted earnings per share of $1.49 on revenue of $19.52 billion. However, the company – much like peer beverage company Coca-Cola (KO), which reported Thursday – offered a weak outlook for 2019. PepsiCo said it expects to earn $5.50 per share in 2019, lower than its 2018 EPS of $5.66 and Wall Street’s 2019 outlook of $5.85 per share, according to Bloomberg data. In the fourth quarter, the company’s North America Beverages unit, which comprises about one-third of sales, posted operating profit declines of 12%, which the company said was due to “certain operating cost increases, including increased transportation costs, a 9-percentage-point impact of higher commodity costs and higher advertising and marketing expenses.”

Deere & Company (DE) missed Wall Street’s expectations for fiscal first quarter earnings, delivering an adjusted $1.54 per share, or 11 cents below consensus estimates. Quarterly sales of $6.94 billion – an increase of 16% over last year – came in slightly below consensus expectations, according to Bloomberg data. Deere CEO Samuel Allen in a statement called out tariff and trade concerns as a key reason for weakness in reported results, saying that the company’s “results were hurt by higher costs for raw materials and logistics as well as customer concerns over tariff and trade policies.” However, he added that he believes cost pressures “should abate as the year progresses,” and the company is hopeful of more clarity on trade issues. Deere, a manufacturer of agriculture equipment, said that it expects equipment sales to increase about 7% in fiscal 2019 versus 2018, adding 1% to its 2019 net sales forecast.

ECONOMY: Industrial production unexpectedly declined in January

Industrial production declined 0.6% in January, down from a 0.1% increase in December, according to a Federal Reserve statement Friday. Consensus estimates had been for a 0.1% increase in industrial production for the month. Manufacturing production also declined unexpectedly, down 0.9% for the month versus expectations of a flat reading. The decrease in manufacturing production was driven by an 8.8% drop in automobile output – excluding motor vehicles and parts, output dipped just 0.2%.

“Manufacturing is under real pressure from the slowdown in China and the trade war, and we expect output to drift down over the first half of the year, putting the sector into a mild recession,” Ian Shepherson, chief economist at Pantheon Macroeconomics, wrote in an email about Friday’s results. “This won’t kill the rest of the economy, but it won’t look good, either, and until the sector bottoms out in the late spring it will make the Fed’s recent dovish turn look like the right move. The second half of the year likely will be a different story, but that’s some way off.”

Manufacturing activity in New York state, however, bounced back in February, according to the Federal Reserve Bank of New York’s latest Empire State Manufacturing Survey. The headline index rose about five points to 8.8 in February, coming in ahead of consensus expectations of a reading of 7. Orders rose four points to 7.5, while an index for numbers of employees declined for a second straight month. The survey also showed that firms were more optimistic about the outlook for the next six months than they had been last month.

U.S. import prices declined 0.5% in January, dropping further than the 0.2% decline anticipated by consensus estimates. The Bureau of Labor Statistics noted that both fuel and non-fuel prices contributed to January’s decline, which was the third consecutive month of decreasing import prices. U.S. export prices, meanwhile, decreased 0.6% for the second consecutive month of declines. Consensus estimates had been for a 0.1% decrease in export prices.

The University of Michigan’s preliminary consumer sentiment reading for February registered at 95.5, an improvement from January’s final reading of 91.2. The better-than-expected results for early February encapsulate the end of the partial government shutdown, along with a “more fundamental shift in consumer expectations due to the Fed's pause in raising interest rates,” Richard Curtin, Surveys of Consumers chief economist, wrote in a statement.

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

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