Dow and S&P 500 eke out gain amid potential US-China trade talks

  • The U.S. is in the process of proposing a new round of trade talks with China in the near future, sources told CNBC.
  • The news sent the Dow and S&P 500 to their session highs, but the two indexes pulled back from those levels before the close.
  • Quincy Krosby, chief market strategist at Prudential Financial, says this is a positive for the market, but added: "We'll need to see some follow-through to take trade out of the risk column."

The Dow Jones Industrial Average and the S&P 500 posted small gains on Wednesday amid the possibility of renewed trade talks between the U.S. and China.

The 30-stock Dow rose 27.86 points to 25,998.92 as Boeing and Caterpillar contributed the most to the gains. The Dow's gains were capped by steep losses in 3M shares. The broad S&P 500 gained just 0.04 percent to close at 2,888.92, led by more than 1 percent jumps in telecommunications and consumer staples.

The U.S. is in the process of proposing a new round of trade talks with China in the near future, sources told CNBC. Dow Jones first reported the news.

Boeing and Caterpillar, two bellwethers for global trade, rose 2.4 percent and 1.6 percent, respectively on the news. United Technologies climbed 0.2 percent.

The news sent the Dow and S&P 500 to their session highs. The Dow rose as much as 174.66 points, while the S&P 500 gained as much as 0.2 percent.

Quincy Krosby, chief market strategist at Prudential Financial, said this is a positive for the market, but added: "We'll need to see some follow-through to take trade out of the risk column."

Prior to Wednesday's report, trade tensions between the two largest economies in the world have been increasing.

China will seek permission from the World Trade Organization to inflict sanctions upon the U.S. as tensions between the two largest global economies continue. Last Friday, President Donald Trump told reporters that he was "ready to go" on hitting China with tariffs on an additional $267 billion of goods, on top the tariffs on $200 billion in goods he has threatened.

The tensions pushed the S&P 500 off a record level reached late last month. Pressure in tech shares also contributed to the index's easing from the all-time high. The S&P 500 tech sector is down 2.3 percent this month.

Michael Nagle | Bloomberg | Getty Images

Tech declined 0.5 percent as shares of chipmakers fell sharply.

The VanEck Vectors Semiconductor exchange-traded fund (SMH) fell 1.2 percent, led by a decline in Micron. Shares of Micron dropped more than 4 percent after Goldman Sachs downgraded them to neutral from buy, citing a "snowballing" decline in memory-chip demand.

Shares of Applied Materials and Lam Research pulled back 2 percent and 3.3 percent, respectively. Intel shares closed flat after trading lower for most of the day.

Semiconductor stocks have been under pressure lately amid heightened concerns of slowing memory-chip demand, helping drag the broader tech space lower. The SMH has dropped more than 4 percent this month.

Tech shares have also fallen amid increasing regulatory pressure toward social media companies, especially Facebook and Twitter. Facebook shares slipped 2.4 percent while Twitter dropped 3.7 percent.

The decline in tech pushed the Nasdaq Composite down by 0.2 percent. to close at 7,954.23.

Equities closed higher on Tuesday as a rebound in tech shares led the gains. The Dow rose more than 100 points while the S&P 500 and Nasdaq gained 0.4 percent and 0.6 percent, respectively.

"This kept the [S&P 500] above last Friday's lows, allowing the most recent peak-to-trough move to remain at -1.8%," said Frank Cappelleri, executive director at Instinet.

"This lines up with the magnitude of the two most recent pullbacks. Could two very bad sessions suddenly destroy this persistent advance? Yes, and that has been the risk since the April lows (and for all of 2017, for that matter)," Cappelleri said in a note. "But simply thinking it is due hasn't been enough."