Dow Celebrates NAFTA Replacement With New Highs

No sooner do we close the books on the third quarter (Q3), than we are starting Q4 and the month of October with a bang. Traders and investors applauded the renegotiation of the North American Free Trade Agreement (NAFTA).

The White House announced the United States Mexico Canada Agreement (USMCA) and the U.S. finally settled terms shortly before the 12:00 AM EST deadline late Sunday evening.

With many moving parts, and some detail yet to be finalized, the agreement resolves difficult points of contention with the Great White North that appeared too difficult to bridge merely a week ago. Yes, there are still a few points of uncertainty, but It’s an understatement to say the framework agreed to is vastly preferred by markets than the proverbial “Nothing Done”.

The Mega Cap Multinationals and Industrials are cheering the loudest. Less than half way into trading on Tuesday the Dow Jones Industrial Average (INDEXDJX: .DJI) is in All Time High territory, after having led the charge Monday with a +0.75% gain.

Clearly the DJIA is stacked with names highly sensitive to Global Trade. Before we get ahead of ourselves, let’s take a recap of how stocks closed out Q3. It was an impressive metric by any measure.

Impressive Third Quarter Results for Major Stock Market Averages

The DJIA gained +9% to close Q3 at 26,458, just over 1% from their September 21 All Time High. Clearly progress on renegotiating legacy Global Trade deals and the US Dollar trending slightly lower the 2nd half of Q3 helped the performance of the multinational makeup of the DJIA.

The DJ Transportation Average gained +10%, slightly outperformed the DJIA in Q3. A vibrant economy, with ever improving Macro Data fueled strong gains in shipping and transportation stocks. It’s very intriguing that 9 years into an economic expansion, albeit the first 7 years of which were quite feeble, the Transportation sector that is typically viewed as an Early Cyclical Barometer, led stock market performance.

The S&P 500 (INDEXCBOE: .INX) gained +7.2% in Q3, with energy stocks, joined by select technology and retail names performing very well. Energy most notably was aided by Crude Oil trading to its highest level in four years, hitting $80 on Brent Crude the last couple weeks of the Quarter.

NASDAQ Composite (INDEXNASDAQ: .IXIC) +7.1% nearly matched the S&P 500, while weathering a few rounds of heightened volatility in the high beta technology names, and particularly the FANG Family. Semiconductors also saw some wild price swings, as trade issues between US and the Pacific Rim appear more stubborn to resolve than elsewhere and industry leader INTC was hit with multiple downgrades throughout the quarter.

A Late Breaking Observation is that INTC is having a spectacular day, Tuesday, with gains better than +4%, and in hindsight, it’s likely the mid September plunge in INTC may have been a capitulation low.

We’ll be watching the action the rest of this week closely. We’re already seeing a few newsprint stories on what may give investors angst in October. Not that we’re against cautious optimism, but we saw numerous similar articles at the beginning of September, and they couldn’t have been more off base.