UKX FTSE 100 Index

By Jon Sindreu and Gunjan Banerji 

U.S. stocks surged Monday, powered higher by shares of industrials companies, as concerns about a trade war between the U.S. and China eased.

The Dow Jones Industrial Average jumped 363 points, or 1.5%, to 25077, topping 25000 for the first time since March 16. The S&P 500 and Nasdaq Composite both advanced 0.9%.

Money managers said discussions between the U.S. and China this weekend have helped avoid a trade war. In an interview Monday, Treasury Secretary Steven Mnuchin said the U.S. will suspend the $150 billion that it had previously threatened to levy on Chinese imports.

Shares of industrials companies were the biggest winners in the S&P 500, adding 1.9%. These companies tend to be exposed to foreign sales, making them a beneficiary of cooling rhetoric on trade. Boeing, which has been sensitive to investor sentiment on trade, was the biggest gainer in the Dow, rising 3.7%.

The U.S. is set to complete the procedural steps to apply tariffs on $50 billion of Chinese imports this week and has threatened to apply levies to a further $100 billion. While China had pledged to retaliate, it has now agreed to purchase a larger amount of American goods to help close the U.S. trade deficit.

Investors had never expected the announced tariffs to significantly affect the world economy but were concerned that further tensions could lead to more countries erecting larger gates on trade. Stocks have gained several times on the belief that trade tensions were easing, only to fall back down as investors took the opposite view.

"It's not in anyone's interests to have severe escalation," said Caroline Simmons, deputy head of U.K. investment at UBS Wealth Management, who believes investors won't ultimately put too much weight on geopolitical spats. "It's noise; in the midterm, it's going to come down to what's being delivered growth-wise and earnings-wise."

Shares of General Electric added 3.5% on Monday after it agreed to merge its railroad business with Wabtec, an equipment maker for transit systems and freight railroads, in an $11 billion deal.

Recent deal activity alongside receding geopolitical tensions have propelled major U.S. stock indexes higher, said Eric Freedman, chief investment officer of U.S. Bank Wealth Management.

Greater deal-making could give stocks another "lift higher," he said.

Technology companies in the S&P 500 rose 1.2%.

While the global economy remains robust and first-quarter earnings have been strong, stock markets have mostly traded sideways this year because many investors have started to fear that the pace of the expansion has already peaked.

"The muted market reaction to earnings is indicating that the upside is priced in," said Witold Bahrke, senior macro strategist at Nordea Asset Management, who favors U.S. stocks because he believes equities overseas will be further dragged down by a stronger dollar, higher Treasury yields and weakening economic indicators in Europe.

"U.S. stocks are very liquid and they tend to be a good safety bet, and in relative terms U.S. growth dynamics are still looking kind of best-in-class," he said.

The WSJ Dollar Index, which measures the greenback against a basket of currencies, was up 0.1% Monday.

In Europe, the Stoxx Europe 600 was up roughly 0.3% in morning trade, with markets in Germany and some other countries in the region closed for a holiday. Britain's FTSE 100 rose 0.9% marking an all-time high.

Meanwhile, spreads between Italian and German government bonds continued to widen and Italy's FTSE MIB stock-market index dropped 0.3% Monday, a sign that investors remain concerned about antiestablishment parties' advances in forming a new government. While bond markets initially brushed off such worries, they have been slightly rattled by recent revelations that the new government could seek to threaten some of the eurozone's fiscal and monetary rules.

Later this week, money managers will pay close attention to the release of the minutes of the Federal Reserve's May policy meeting, which are expected to shed further light on how fast officials are likely to raise rates to react to higher inflation.

Five-year market expectations of inflation have moved up over the past month as oil prices rose to multiyear highs, but longer-term measures of inflation expectations remain contained, raising questions about how much the Fed will react to one-off price increases. U.S. crude climbed 0.3% Monday to $71.58 a barrel.

Asian stocks powered higher, with all of China's indexes notching gains. Japan's Nikkei Stock Average closed up 0.3%.

Write to Jon Sindreu at jon.sindreu@wsj.com and Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

May 21, 2018 11:25 ET (15:25 GMT)

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