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US stock indexes hit pause, hold close to record levels

NEW YORK (AP) — A meandering day of trading left U.S. stock indexes close to their record highs on Wednesday, as strong gains for health care companies jousted with sharp drops in energy stocks.

The market took a decisive turn lower in the middle of the day after a report from Reuters said the United States and China may delay signing “phase one” of their trade deal until December, but the drop didn’t last long. After sinking 0.3%, the S&P 500 erased its loss within about two hours.

By the end of the day, the index was up 2.16 points, or 0.1%, at 3,076.78. It’s within two points of its record.

The Dow Jones Industrial Average dipped 0.07 points, less than 0.1%, to 27,492.56, and the Nasdaq composite fell 24.05, or 0.3%, to 8,410.63.

The U.S.-China trade war has been a top concern for investors since early 2018, and momentum has recently been tilting toward at least a partial agreement. That, combined with encouraging reports on the economy and corporate profits, have recently propelled U.S. indexes past their prior peaks from July to all-time highs.

While acknowledging that trade talks could easily falter again, Jeff Mills, chief investment officer at Bryn Mawr Trust, said both sides have an incentive to come to a deal. China’s economic growth has slowed under the weight of increased U.S. tariffs. President Donald Trump’s chances of re-election, meanwhile, likely hinge in large part on the economy, and a worsening trade war would only sour it.

Mills is optimistic the economy will show more life after the Federal Reserve cut interest rates three times this year, if trade tensions continue to ratchet lower. It would be a sharp turnaround from just a few months ago, when worries were spiking that Trump’s trade war and four interest-rate increases by the Federal Reserve in 2018 could tip the economy into a recession.

“People know this intellectually but tend not to focus on it: Changes in interest rates impact the economy with a significant lag,” Mills said. “What we’ve been seeing the last year or so is the economy absorbing the rise in interest rates that we experienced in 2018.”

Early next year, the economy should start to get a boost from the Fed’s three rate cuts since the summer, “and I would expect the market to see the recession narrative as overblown,” he said.

Until then, though, markets are still trading on every whiff of news about trade. Wednesday’s moves following the report of a possible “phase one” delay demonstrated that.

“Trade is a key issue but it’s difficult to gain an edge because no deal has been signed,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management. “It’s proving to be challenging for investors.”

One thing more certain for investors has been the steady flow of better-than-expected profit reports from big companies. Over the last month, hundreds have told investors how much they made from July through September, and in most cases the declines were not as steep as analysts had forecast.

With about 80% of reports in hand, S&P 500 companies on track to report a drop of 2.6% in earnings from a year earlier, according to FactSet. That’s versus initial expectations for a 4% decline.

Health care stocks had some of Wednesday’s most notable reports. CVS Health helped lead the way with a 5.4% gain after it reported a stronger profit for the latest quarter than analysts expected and raised its forecast for the year. Humana jumped 3.5% after it also turned in a better-than-expected earnings report.

Together, they helped drive health care stocks in the S&P 500 to a 0.6% gain, the largest among the 11 sectors that make up the index.

On the losing end were energy stocks, which sank 2.3% for the market’s worst losses after oil prices slumped.

Exxon Mobil lost 2.2%, and oilfield services provider Schlumberger fell 3.2%. Occidental Petroleum tumbled 5.5%.

Benchmark U.S. crude lost 88 cents to $56.35 per barrel after a report showed that the amount of oil supplies in inventories rose last week. Brent crude fell $1.22 to $61.74.

Treasury yields dipped, putting at least a temporary halt to the strong gains they’ve made in recent days. The yield on the 10-year Treasury fell to 1.82% from 1.86% late Tuesday.

Global markets mostly drifted higher. France’s CAC 40 rose 0.3%, Germany’s DAX returned 0.2% and the FTSE 100 in London added 0.1%. The Japanese Nikkei 225 rose 0.2%, the South Korean Kospi gained 0.1% and the Hang Seng in Hong Kong was virtually flat.

In commodities markets, wholesale gasoline fell 5 cents to $1.63 per gallon. Heating oil lost 3 cents to $1.93 per gallon. Natural gas fell 3 cents to $2.83 per 1,000 cubic feet.

Gold rose $9.40 to $1,490.20 per ounce, silver rose 4 cents to $17.56 per ounce and copper fell 3 cents to $2.66 per pound.

The dollar fell to 108.93 Japanese yen from 109.24 yen on Tuesday. The euro edged up to $1.1069 from $1.1065.

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