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S&P 500 posts new record close, but trade worries cap gains

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Markets have been trading off on sentiment and valuation, expert says

Stocks rose slightly on Tuesday, but gains were kept in check after the U.S. threatened a new wave of tariffs on European goods, dampening recent optimism surrounding the Washington-Beijing trade truce.

The climbed 0.3% to 2,973.01 and posted a record closing high while the Dow Jones Industrial Average ended the day up 69.25 points at 26,786.68. The Nasdaq Composite advanced 0.2% to 8,109.09.

Losses in bank shares also kept a lid on the broader market, however. Citigroup shares fell 0.4% while Bank of America and Wells Fargo dropped more than 0.9% each. The SPDR S&P Bank ETF (KBE) closed 1.4% lower as Treasury yields declined. The benchmark 10-year yield traded around 1.97% while the 2-year rate fell to 1.76%.

The U.S. government on Monday threatened to impose tariffs on $4 billion of additional European Union goods in a long-running dispute over aircraft subsidies. The U.S. Trade Representative's office released a list of products — including olives, Italian cheese and Scotch whiskey — that could be hit with new levies in additional to those introduced in April.

The new wave of proposed duties comes amid a 15-year dispute at the World Trade Organization over aircraft subsidies given to U.S. aerospace manufacturer Boeing and its European rival, Airbus.

"This brings the running total of imports subject to potential levies to about $25 [billion] and offers a reminder that Trump's trade war has no practical end in sight," Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets, wrote in an email. "One thing is certain, any optimism that Osaka assuaged the Fed's concern over the 'uncertainties' facing the global economy has quickly eroded."

Traders work on the floor at the New York Stock Exchange.
Brendan McDermid | Reuters

Chipmakers and other tech companies helped buoy the S&P 500 to at all-time high on Monday on the heels of improved U.S.-China trade talks. President Donald Trump and Chinese President Xi Jinping agreed not to impose new levies on U.S. and Chinese goods after meeting on the sidelines of the G-20 summit in Japan on Saturday.

Though Trump said the meeting went as well as it could have, the U.S. president said Monday that any trade deal with Beijing would be "somewhat tilted" in favor of Washington.

This month marks the longest economic expansion in U.S. history, reaching 10 years. However, U.S. GDP growth in that time has been lackluster relative to other expansions.

"The current economic expansion has been the most hated one of all time, as the pessimists claimed that it has been associated with the most inequality in both incomes and wealth," Ed Yardeni, president of Yardeni Research, said in a note. "In other words, this has been the Rodney Dangerfield of economic expansions—getting no respect."

Yardeni added he expect the expansion to keep going "beyond" 2019. "The Trauma of 2018 was extremely traumatic. The widespread fear that it could happen again anytime soon has kept a lid on speculative excesses. So there hasn't been a boom to set the stage for a bust."

— CNBC's Sam Meredith contributed reporting.