U.S. stocks gain after positive Trump/Xi call on trade

U.S. stocks rose Thursday following positive trade discussion between President Trump and Chinese President Xi Jinping. Recent labor data indicated a cooling market, with jobless claims increasing to 247,000, above expectations, reinforcing hopes for a potential rate cut; this precedes Friday's nonfarm payrolls report projecting 130,000 jobs added. Broadcom's earnings are closely watched for insights into AI chip demand, while oil prices rebounded after earlier losses despite concerns over rising gasoline and distillate inventories.

Analysis

U.S. equity markets experienced gains, with the Dow Jones Industrial Average rising 0.3%, the S&P 500 gaining 0.4%, and the NASDAQ Composite climbing 0.7%, buoyed by positive remarks from President Trump regarding a trade discussion with Chinese President Xi Jinping and signs of a cooling U.S. labor market fostering expectations for a potential Federal Reserve rate cut. Specifically, U.S. jobless claims increased to 247,000 for the week ended May 31, exceeding the revised prior week's 239,000 and the anticipated 236,000, pushing the four-week moving average to 235,000. This data, following an ADP report indicating U.S. private employers added fewer jobs than expected in May, contributes to a narrative of a softening labor market, a sentiment echoed by Minneapolis Fed President Neel Kashkari who advocated for a "wait-and-see" approach from the Fed. Investors are now keenly awaiting Friday's nonfarm payrolls report, projected to show 130,000 jobs added last month. Adding to the global monetary policy context, the European Central Bank implemented an interest rate cut, its eighth since last June, amidst concerns of waning inflation and trade tension impacts. On the corporate front, Broadcom's (AVGO) upcoming earnings are highly anticipated for insights into AI chip demand, particularly given some investor concerns about potential capex pullback in AI versus strong investment commitments from major tech firms. Conversely, Five Below (FIVE) stock rose on better-than-expected Q1 results and solid Q2 guidance, while MongoDB (MDB) surged following an upbeat annual forecast, strong quarterly results, and an expanded share repurchase program. In commodities, crude oil prices rebounded, with Brent futures rising 1% to $65.51 and WTI crude climbing 1.1% to $63.53, despite an outsized build in U.S. gasoline (5.2 million barrels) and distillate (4.2 million barrels) inventories which raised demand concerns, even as U.S. oil inventories shrank by a larger-than-expected 4.3 million barrels.

Key Decisions for Investors

• Closely monitor the upcoming U.S. nonfarm payrolls report as a critical input for market direction and Federal Reserve policy expectations, particularly regarding the cooling labor market narrative.
• Evaluate opportunities in companies with robust fundamentals and positive outlooks, such as Five Below (FIVE) and MongoDB (MDB), which have demonstrated strength amid economic uncertainties.
• Approach investments in AI-related sectors, particularly semiconductor stocks like Broadcom (AVGO), with caution pending its earnings release, which will offer vital clues on AI capital expenditure trends.
• Maintain a watchful stance on energy markets, as substantial builds in U.S. gasoline and distillate inventories may temper crude oil price gains despite crude stock drawdowns, signaling potential demand weakness.
• Balance the positive impact of trade optimism and potential monetary easing against the underlying risk of an economic slowdown, which is driving rate cut expectations, by employing prudent risk management.