U.S. Stocks Flip Between Gains and Losses Ahead of Trade Talks

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02/11/2019 | 09:18 pm

By Akane Otani and Michael Wursthorn

The S&P 500 struggled to find direction Monday as trade tensions simmered ahead of another round of negotiations between U.S. and Chinese officials.

With more than half of the companies in the broad index having reported fourth-quarter results, investors have turned their attention toward the continuing trade spat between the world's two largest economies. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to meet China's vice premier later in the week in Beijing.

Investors worry the talks could spark fresh volatility for financial markets, leading some to avoid making any major moves ahead of the negotiations. Stocks rose in January on fresh hopes that the U.S. and China would be able to carve out a trade deal, but some of that optimism appeared to lose steam last week as investors parsed a stream of downbeat economic data.

"There's this belief that this is going to very quickly resolve itself, and I think the reality is that there are very complicated long-term issues on the trade relationship between the two most powerful economies around the world," said Jonathan Golub, chief U.S. equity strategist at Credit Suisse.

Although economic growth in the U.S. still looks relatively steady, Mr. Golub cautioned that an unexpected breakdown in trade talks remains a major market risk.

"I'm actually quite optimistic about the broad backdrop -- but that doesn't mean that there's no risk," he said.

For now, investors appeared to be awaiting any insight into how negotiations will proceed, leaving major U.S. indexes stuck roughly where they were Friday -- a situation that could quickly change depending on how trade talks play out, added Mark Haefele, chief investment officer of UBS Global Wealth Management.

The S&P 500 fell less than 0.1% in recent trading, the latest in a series of small moves above and below the flatline Monday. The Dow Jones Industrial Average shed 68 points, or 0.3%, to 25036, while the Nasdaq Composite rose less than 0.1%.

Communication stocks were the biggest drag on the broad index, with the sector falling 0.6%. Videogame company Activision Blizzard fell 6.8%, while Take-Two Interactive Software shed 3.7%, extending their losses so far this month into the double digits on a percentage basis.

Missed earnings and weak outlooks for the year, partly due to the rise of mobile game "Fortnite," contributed to rebuke from investors, analysts said.

Industrial stocks, meanwhile, were among the best-performing stocks in the broad index Monday. Aluminum-parts manufacturer Arconic and railroad company Norfolk Southern both rose more than 3%, triggering more modest gains throughout the S&P 500's industrial sector

Norfolk Southern added 3.9% to lead the sector higher after it unveiled a strategic plan focused on increased productivity and revenue growth, as well as achieving a dividend payout ratio of 33%.

Arconic rose 3.1% after the company said Friday that it would spin off either its aluminum-sheet rolling or aerospace-components unit.

Energy stocks in the S&P 500 also rose, giving the index additional support.

Elsewhere, the Stoxx Europe 600 climbed 0.9%, while major indexes in Asia ended mixed. The Shanghai Composite jumped 1.4% to a two-month high, while Japan's Nikkei Stock Average was shut for a holiday and Hong Kong's Hang Seng rose 0.7%.

Write to Akane Otani at akane.otani@wsj.com and Michael Wursthorn at Michael.Wursthorn@wsj.com

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