Stocks give up a gain on fears China tensions may escalate

Stocks gave up an early rally and ended slightly lower Thursday as traders feared that tensions with China could escalate again. The S&P 500 had been up 1.1% before sinking in the last hour after President Donald Trump said he would hold a news conference on China Friday. The announcement came after China’s legislature endorsed a national security law for Hong Kong that has strained relations with the U.S. and prompted new protests. The S&P 500 had been on track for its fourth straight gain, which would have been its longest winning streak since February, before the coronavirus lockdowns began.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story is below:

Wall Street is rallying again on Thursday, extending this week’s climb built on hopes for a coming economic revival.

The S&P 500 was up 0.9%, as of 1:17 p.m. Eastern time, on track for its fourth straight gain. That would be its longest winning streak since early February, before the market began to sell off on worries about the severe recession caused by the coronavirus pandemic.

The Dow Jones Industrial Average rose 162 points, or 0.6%, to 25,710, while the Nasdaq composite was up 1.1%.

Treasury yields also rose in a sign of decreased pessimism about the economy after a report suggested some of the tens of millions of laid-off Americans were able to find work last week.

“That’s crucial for the market because with an economy that’s propelled by consumer spending, you need to see the the U.S. opening, you need to see that cases of the virus are down, that hospitalizations are down and that the consumer is going back to work,” said Quincy Krosby, chief market strategist at Prudential Financial.

While the numbers still show immense economic pain, she said they’re “in the category of what we call ‘less bad.’”

Gains for tech and health care stocks were some of the biggest factors nudging the market to its highest level since early March, and the S&P 500 is back within 10% of its record high set in February. Johnson & Johnson was up 1.2%, Apple rose 1.4% and Microsoft gained 1.1%.

Dollar Tree jumped 11.8% for the largest gain in the S&P 500 after the retailer reported stronger revenue and earnings for its latest quarter than Wall Street expected. In an encouraging sign, executives also said recent trends have been improving for purchases of discretionary items, such as kitchenware and toys, instead of just essentials for hunkering down.

They helped offset losses for banks and energy stocks. Twitter also was down 2.4% as President Donald Trump prepared to sign an executive order aimed at curbing liability protections for social media companies. Trump has been railing against Twitter after it applied fact checks to two of his tweets.

Thursday’s gains have the S&P 500 on pace for its third weekly rise of at least 3% in the last four weeks. Following their breathtaking drop of nearly 34% in February and much of March, stocks began climbing after the Federal Reserve and Capitol Hill pledged unprecedented amounts of aid for the economy.

More recently, the market has pushed higher as investors move into stocks that would benefit most from a reopening economy. Governments around the country and world are slowly lifting restrictions meant to corral the outbreak, which has investors hoping the worst of the recession has already passed or will soon.

Still, some analysts warn that investors may have gotten ahead of themselves. The stock market has rebounded very quickly after hitting a bottom in late March, when the economy may take much longer to heal and recover. That could be setting investors up for disappointment in the future.

“I don’t know why investors are so confident,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “The damage has been so great that some businesses that otherwise would have survived, they will fail.”

Hotels, airlines and related industries are not going to get back to their 2019 levels anytime soon, he said. When tourists do return, it will not be in the same numbers.

“It’s unreasonable to expect us to regain jobs as fast as we lost them,” he said.

Longer-term Treasury yields rose Thursday after a government report showed that the number of workers filing for unemployment benefits dipped for the eighth straight week, though the number remains incredibly high.

Perhaps more importantly for the market, the number of continuing claims for unemployment fell to 21.1 million from 24.9 million. It’s the first decline since the number of layoffs exploded in March. If it continues, economists said it could be a sign that more people are going back to work as states begin their reopenings.

The yield on the 10-year Treasury rose to 0.70% from 0.67% late Wednesday. It tends to move with optimism about the economy’s strength and inflation.

In Europe, the German DAX returned 1.1%, and the French CAC 40 rose 1.8%. The FTSE 100 in London added 1.2%.

Asian markets were mixed as tensions continue to heighten between the United States and China. The latest flashpoint between them stems from Beijing exerting more control over Hong Kong, and investors are worried about the risk that trade tensions between the world’s largest economies could reignite.

The Hang Seng in Hong Kong fell 0.7%, while stocks in Shanghai added 0.3%. The Nikkei 225 in Tokyo rose 2.3%, and the South Korean Kospi slipped 0,1%.

A barrel of U.S. crude oil for delivery in July rose 3.5% to $33.97. Brent crude, the international standard, was up 2.7% at $36.42 per barrel.

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