Stocks: Surging on US-China trade deal breakthrough

The S&P 500 is set to rally at the open, but will it extend its gains much further?

The S&P 500 closed 0.07% lower on Friday, but today it's set to open dramatically higher following the breakthrough U.S.-China trade deal announced over the weekend. Futures are surging, with S&P 500 futures up 3.0% and Nasdaq futures soaring by an impressive 3.9%

This weekend's high-stakes trade talks in Geneva yielded a positive outcome, with both sides agreeing to a 90-day pause on tariff increases. The U.S. has reduced tariffs on China to 30% (down from at least 145%), while Beijing has lowered duties on U.S. imports to 10% (down from 125%).

Investor sentiment has recently improved, as reflected in last Wednesday’s AAII Investor Sentiment Survey, which reported that 29.4% of individual investors are bullish, while 51.5% are bearish.

The S&P 500 is likely to break out of its short-term consolidation. Although Thursday's rally failed to decisively surpass the 5,700 resistance level, the index is set to open above the 5,800 mark today - its highest since early March - retracing more of its decline from the February record high.

S&P 500: Little change last week

The S&P 500 declined 0.47% last week, consolidating after two strong weeks of gains. Investors showed caution as they awaited the outcome of the weekend's trade negotiations.

Now with today's trade deal news, it looks like last week's uncertainty was just a quick pause before the rally continues.

Nasdaq 100: Tech stocks to lead the rally

The tech-heavy Nasdaq, particularly sensitive to U.S.-China relations due to significant exposure to the Chinese market, is showing the strongest pre-market gains. With futures up 3.9%, the index is poised to open well above the 20,000 level, potentially challenging 20,900.

VIX set to plunge

The volatility index, which dipped to a local low of 21.83 on Friday, is expected to drop significantly at today's open as fear subsides following the trade agreement. A VIX below 20 would signal increased investor confidence.

Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.

S&P 500 futures contract: Breaking higher

This morning, the S&P 500 futures contract has broken decisively above the 5,700-5,720 resistance zone that had contained prices last week. This technical breakout, fueled by the weekend's trade agreement, opens the door to potential moves toward 5,900-6,000.

However, some profit-taking could occur following the initial surge. Support remains near 5,700, which previously acted as resistance.

Conclusion

The S&P 500 is poised for a substantial gap higher this morning following the weekend’s trade agreement between the U.S. and China. While this development significantly improves the market outlook, investors should remain cautious ahead of tomorrow’s key CPI data release.

Here’s the breakdown:

• The U.S.-China trade deal represents a significant de-escalation, with dramatic tariff reductions on both sides.

• S&P 500 futures are up 3.0% and Nasdaq futures surging 3.9%, indicating powerful technical breakouts.

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