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Tuesday 15 October 2019

Early rally over Canada deal fades, leaving US stocks mixed

Oil prices neared four-year highs but smaller companies suffered their worst losses in three months.

New York Stock Exchange.(AP Photo/Richard Drew, File)
New York Stock Exchange.(AP Photo/Richard Drew, File)

By Marley Jay, Associated Press

Stocks rose in early going on Monday after the US and Canada agreed a new trade deal, but the rally ran out of momentum later in the day, leaving major indexes mixed.

Oil prices neared four-year highs but smaller companies suffered their worst losses in three months.

Large industrial and basic materials stocks made big gains, and energy companies rose as crude oil and natural gas reached their highest prices in years.

Car companies also rose as investors anticipated that tariffs on imported cars are less likely.

Many investors saw the United States-Mexico-Canada Agreement as an update of the 1994 North American Free Trade Agreement (Nafta), not a major overhaul.

“Most investors thought the Nafta deal would end somewhat peacefully,” said Mark Hackett, chief of investment research at Nationwide Investment Management. “It’s an incremental positive to get it out of the news but it’s not transformational.”

General Electric soared after it ousted chairman and CEO John Flannery, while Tesla reversed a big loss from Friday and made its largest gain in five years after founder Elon Musk settled a lawsuit brought by securities regulators, allowing him to remain as CEO.

The S&P 500 index rose as much as 23 points during the day, then finished with a gain of 10.61 points, or 0.4%, at 2,924.59.

The Dow Jones Industrial Average jumped 192.90 points, or 0.7%, to 26,651.21, and the Nasdaq composite lost 9.05 points, or 0.1%, at 8,037.30.

Mexico’s main stock index rose 0.8% and while Canada’s added 0.2%.

Mexico and the US announced a trade agreement in late August and despite a few harsh remarks by President Donald Trump and Prime Minister Justin Trudeau, experts expected Canada would join the pact, as Canada is the US’s second-largest trade partner, and a deal without Canada would have affected the supply lines of companies in numerous industries.

The Russell 2000 index of smaller and more US-focused companies sank 23.58 points, or 1.4%, to 1,672.99. That was its worst loss since late June. The index has lost 3.9% since the end of August while multinational companies, like those on the S&P 500, have moved higher.

The agreement gives US dairy farmers more access to the Canadian market, and keeps a Nafta dispute-resolution process that the US wanted to eliminate.

It offers Canada protection if the US goes ahead with plans to impose tariffs on cars, trucks and auto parts imported into the US. General Motors climbed 1.6% to 34.20 dollars.

Among industrial companies, Boeing rose 2.8% to 382.29 dollars, and Honeywell gained 1.1% to 166.44 dollars. General Electric jumped 7.1% after it said Mr Flannery will be replaced by H Lawrence Culp, the former CEO of industrial and medical device company Danaher.

Mr Flannery took over GE from Jeffrey Immelt in 2017 and tried to return the company to its industrial roots by focusing on aviation, health care and power. Some investors wanted him to go further and felt GE should split up.

His tenure was marked by big missteps. In June GE said it would pay 15 billion dollars to make up for miscalculations by an insurance division, and in September the company disclosed flaws in its marquee gas turbine.

On Monday GE said it is taking a 23 billion dollar charge related to its power business and will miss its annual profit target. Its stock has fallen by half over the last year.

Tesla soared 17.3% to 310.70 dollars after Mr Musk agreed to give up the chairman’s role for at least three years, while Tesla will appoint two independent new directors to its board.

The stock plunged 14% on Friday after the Securities and Exchange Commission said Mr Musk misled investors in August with a tweet saying he had secured the funding to take Tesla private.

In a court filing, the SEC said it wanted to bar him from serving as an officer or director of a publicly traded company and called his actions securities fraud. Mr Musk and Tesla are each paying 20 million dollars to resolve the lawsuit.

Benchmark US crude climbed 2.8% to 75.30 dollars a barrel in New York, its highest closing price since November 2014. Brent crude, used to price international oils, added 2.7% to 84.98 dollars per barrel in London. It is also trading at four-year highs.

Wholesale gasoline rose 2 percent to 2.13 dollars a gallon, heating oil added 2.5% to 2.41 dollars a gallon, and natural gas jumped 2.9% to a three-year high of 3.09 dollars per 1,000 cubic feet.

Mr Hackett said the recent rise in oil prices is a bigger problem for small companies than it is for larger multinationals.

Bond prices fell. The yield on the 10-year Treasury note rose to 3.09% from 3.05%.

Gold fell 0.4% to 1,191.70 dollars an ounce, silver lost 1.4% to 14.51 dollars an ounce, and copper slid 0.6% to 2.79 dollars a pound.

The dollar rose to 113.99 yen from 113.58 yen. The euro dipped to 1.1575 dollars from 1.1610. The Canadian dollar fell to 1.2787 from 1.2922.

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