The S&P 500 extended last week's rally by 1.1% on Monday, as investors breathed a sigh of relief that U.S.-China trade relations did not worsen over the weekend. Meanwhile, the Dow Jones Industrial Average gained 1.1%, the Nasdaq Composite gained 1.5%, and the Russell 2000 gained 1.0%.

President Trump and President Xi agreed at their Saturday dinner meeting to suspend further tariff actions for 90 days, during which time further negotiations will be conducted with an aim of trying to settle disagreements over structural trade issues. National Economic Council Director Larry Kudlow told reporters the 90-day clock will start Jan. 1 and expects changes across a broad range of issues to happen "very quickly."

Stocks retreated from their best levels, though, reined in by an underlying sense that the morning's positive reaction to the Trump-Xi agreement to suspend further tariff actions was probably an overreaction since nothing concrete was achieved in terms of resolving the most important structural trade issues between the two countries. Also, the specter of moving the tariff rate to 25% (from 10%) on $200 billion of Chinese goods continues to hang there as a stick in the event an acceptable deal to the U.S. is not struck within the 90-day deadline.

Nevertheless, the stock market still had a solid day with the energy (+2.3%), consumer discretionary (+2.2%), information technology (+2.1%), and material (+1.8%) sectors outperforming the broader market.

WTI crude bounced 4.3% to $53.06/bbl to help lift the oil-sensitive energy group. Contributing to crude's advance was an upbeat growth perspective from the trade ceasefire and Canadian province Alberta's decision to cut oil production by 325,000 barrels per day, or 8.7%, starting in January to help curtail excess supply. Separately, Qatar surprisingly announced plans to withdraw from OPEC to focus on gas production; Qatar has been a member of OPEC since 1961.

Within the consumer discretionary space, heavyweights Amazon (AMZN 1772.36, +82.19) and Nike (NKE 77.94, +2.82) helped carry the sector with strong gains of 4.9% and 3.8%, respectively. Auto stocks also had a solid showing amid some trade tension relief.

President Trump tweeted Sunday evening, "China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%." Larry Kudlow noted in a Reuters interview on Monday that he expects China to reduce car tariffs to zero. Ford Motor (F 9.60, +0.19) and General Motors (GM 38.46, +0.51) added respective gains of 2.0% and 1.3%.

Chip stocks also had a notably strong performance on Monday, as the Philadelphia Semiconductor Index rose 2.7%. Advanced Micro (AMD 23.71, +2.41, +11.3%), which led the S&P 500 in gains on Monday, provided strong support for the index and the tech sector. Apple (AAPL 184.82, +6.24) also contributed to the tech sector's advance with a strong gain of 3.5%.

Conversely, the real estate (+0.4%), communication services (+0.1%), and consumer staples (-0.1%) sectors finished at the bottom of the sector standings. Notable laggards from each respective sector included American Tower (AMT 163.08, -1.41, -0.9%), Verizon (VZ 58.16, -2.14, -3.6%), and PepsiCo (PEP 118.98, -2.96, -2.4%). Verizon was downgraded to 'Neutral' from 'Overweight' at JP Morgan. 

In M&A news, pharmaceutical company Tesaro (TSRO 73.50, +27.12) soared 58.5% after it agreed to be acquired by UK-based GlaxoSmithKline (GSK 38.61, -3.26, -7.8%) for roughly $5.1 billion. Also, Tribune Media (TRCO 44.98, +4.72) gained 11.7% after Nexstar (NXST 88.32, +5.68, +6.9%) agreed to acquire the media company for $46.50/share in a cash transaction that is valued at $6.4 billion.

Separately, U.S. Treasuries had a much better day than many participants might have expected in the face of some optimism in the stock market. The 2-yr yield added one basis point to 2.82%, and the 10-yr yield lost two basis points to 2.99%. Meanwhile, the U.S. Dollar Index declined 0.3% to 96.99. The resiliency of the Treasury market reflected a more practical awareness that an agreement to keep talking is still a long way from an economically-material solution on major trade issues.

Reviewing Monday's economic data, which included the ISM Index for November and Construction Spending for October:

• The ISM Manufacturing Index for November checked in at 59.3% (Briefing.com consensus 57.2%) versus 57.7% for October, led by strength in the New Orders Index.
  • The key takeaway from the report is that it reflects an acceleration in national manufacturing activity at a time when concerns have been picking up about a general growth slowdown. Accordingly, it can help mitigate some of the slowdown concerns and potentially foster an improved outlook for Q4 GDP growth. According to the ISM, the past relationship between the PMI and overall economy indicates the November reading corresponds to a 4.9% increase in real GDP on an annualized basis.
• Total construction spending declined 0.1% in October (Briefing.com consensus +0.3%) following a downwardly revised 0.1% decline (from 0.0%) in September.
  • The key takeaway from the report is that the weakness was driven by a decline in new single-family construction, providing further evidence of the softening in housing market activity.

Looking ahead, investors will receive Auto and Truck Sales for November throughout the day.

• Nasdaq Composite +7.8% YTD
• Dow Jones Industrial Average +4.5% YTD
• S&P 500 +4.4% YTD
• Russell 2000 +0.9% YTD

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• Headlines provided by Briefing.com