Wall Street starts off fourth quarter on a strong foot as investors cheer new NAFTA deal

• New North American trade pact boosts stocks on Monday.
• Car manufacturers lift industrials.
• Energy sector rises sharply on crude oil rally.

Major equity indexes started the first day of October higher as investors celebrated the new trade pact,  USMCA (United States-Mexico-Canada Agreement), the U.S., Canada and Mexico reached on Sunday.  

The trade sensitive S&P 500 Industrials and Materials indexes finished the day  1.04% and 0.9% higher, respectively, to reflect the improved market sentiment. Commenting on this development, “While the new US, Mexico and Canada trade deal does not directly affect the American dispute with China it underlines how difficult it will be for Beijing’s to replace access to US markets. With China’s manufacturing sector headed toward contraction President Xi may be running out of options,” FXStreet Senior Analyst Joseph Trevisani said.

Moreover, today’s manufacturing PMI reports, which showed that the business activity continued to expand at a healthy pace, provided an additional boost to these sectors. “Despite the decline in the September ISM reading, it remains close to a 14 year high. Manufacturing and factory employment will continue their substantial contribution to US economic growth in the fourth quarter,” Trevisani added.

Meanwhile, tightening  supply amid the U.S. sanctions on Iran continued to fuel the crude oil rally. The barrel of West Texas Intermediate rose to its highest level since November 2014 above $75 and the S&P 500 Energy Index added 1.47% on Monday.

The Dow Jones Industrial Average gained 212.11 points, or 0.8%, to 26,670.42, the S&P 500 rose 10.88 points, or 0.37%, to 2,924.86 and the Nasdaq Composite lost 9.31 points, or 0.12%, to 8,037.05.

DJIA technical outlook via FXStreet Chief Analyst Valeria Bednarik

The Dow has trimmed most of last week’s losses and trades not far away from record highs, offering a bullish stance in its daily chart, as technical indicators are resuming their advances well into positive territory after correcting overbought readings, while the index continues developing above firmly bullish moving averages.

Shorter term, and according to the 4 hours chart, the risk is also skewed to the upside, as the index spent the day far above bullish moving averages, while an intraday decline helped technical indicators correct overbought conditions, now consolidating well into positive territory.

Support levels: 26,602 – 26,551 – 25,510.

Resistance levels: 26,681 – 26,738 – 26,781.