At a Glance
- US stock indexes, including the S&P 500, Dow Jones Industrials, and Nasdaq 100, achieved new all-time highs, buoyed by easing global trade tensions and positive corporate earnings outlooks.
- Anticipation of a more dovish Federal Reserve, including a potential interest rate cut and an end to quantitative tightening, provided further support for the market.
- Notable stock movements included significant gains in Nvidia, Teradyne, Seagate Technology, Bloom Energy, Caterpillar, Centene, and Cognizant Technology Solutions, while Fiserv, Avantor, and Verisk Analytics saw notable declines.
- International markets also showed strength, with the Euro Stoxx 50, China’s Shanghai Composite, and Japan’s Nikkei Stock 225 reaching new highs.
- The ongoing US government shutdown continues to weigh on market sentiment, delaying economic data releases and potentially impacting employment figures.
Market Rally Driven by Trade Easing and Fed Hopes
US stock markets experienced gains today, with major indexes like the S&P 500, Dow Jones Industrials, and Nasdaq 100 reaching unprecedented all-time highs. This upward trend was fueled by optimism surrounding the easing of global trade tensions, particularly following statements from President Trump indicating a potential reduction in tariffs on Chinese goods. The prospect of China collaborating on addressing the export of fentanyl precursor chemicals appeared to be a key factor.
Further supporting the market, the Wall Street Journal reported that President Trump was considering lowering tariffs on Chinese goods from 20% to as low as 10%, in anticipation of China’s cooperation on chemical exports. Additionally, the finalization of a trade deal between the US and South Korea, which includes significant South Korean investment in US shipbuilding and caps on tariffs for South Korean goods, contributed positively to market sentiment.
Semiconductor Stocks Lead the Charge
The strength observed in the semiconductor sector played a crucial role in lifting the broader market. Nvidia, in particular, saw a significant surge of over 4% after President Trump expressed openness to China accessing Nvidia’s Blackwell AI processor as part of a trade agreement. Chinese Foreign Ministry spokesman Guo Jiakun indicated China’s readiness to inject fresh momentum into US-China relations.
Anticipation of a Dovish Federal Reserve
The possibility of a more accommodative stance from the Federal Reserve also acted as a bullish signal for stocks. The market largely expects the Fed to implement a 25 basis point cut to the federal funds target range at the conclusion of its two-day FOMC meeting, bringing it to 3.75%-4.00%. Furthermore, there’s speculation that the Fed might also cease its quantitative tightening program.
Following a potential rate cut today, market participants are pricing in a strong probability of another 25 basis point reduction at the upcoming FOMC meeting on December 9-10. The current market consensus anticipates a total of 115 basis points in rate cuts by the end of 2026, reducing the effective federal funds rate from its current 4.10% to 2.95%.
This week’s FOMC meeting will not include the release of a Summary of Economic Projections, meaning the markets will hear from Fed Chair Powell during his press conference but will not receive updated outlooks on interest rate trajectories from other Fed officials.
The expected announcement of an end to the Fed’s quantitative tightening, which involves reducing its balance sheet, is seen as a positive development for both stock and bond markets, as it would prevent further liquidity drain from the US financial system.
Mortgage Applications Rise as Rates Fall
💡 US MBA mortgage applications increased by 7.1% in the week ending October 24th. Purchase mortgage applications were up 4.5%, while refinancing applications saw a 9.3% rise. The average 30-year fixed mortgage rate declined by 7 basis points to a 13-month low of 6.30%.
Trade Deal Progress Boosts Investor Confidence
Markets also benefited from developments on the trade front, with a tentative trade agreement reportedly reached between US and Chinese negotiators over the weekend. This agreement is expected to be formally announced at the summit between Presidents Trump and Xi in South Korea. Treasury Secretary Bessent indicated that the threat of a 100% tariff on US imports from China, scheduled for November 1st, is now effectively off the table.
China has reportedly agreed not to restrict rare earth metal exports for at least a year and to purchase a significant volume of US soybeans. Progress was also made on shipping fees and US demands concerning fentanyl precursor exports. There is also speculation about a potential agreement that would allow continued access to TikTok for US consumers.
Robust Earnings Season Continues Amidst Slowing Growth
This week is marked by a heavy earnings schedule, with 173 S&P 500 companies set to report. Notably, five of the Magnificent Seven companies are releasing their results: Alphabet, Meta, and Microsoft are reporting today, with Apple and Amazon.com scheduled for Thursday.
Q3 earnings have shown strength so far, with 84% of reporting S&P 500 companies exceeding forecasts, on track for the best quarter since 2021, according to Bloomberg Intelligence. However, Q3 profits are projected to increase by 7.2% year-over-year, which represents the smallest increase in two years. Q3 sales growth is also expected to moderate to 5.9% year-over-year, down from 6.4% in Q2.
Trade Relations with Canada Under Scrutiny
Attention remains on US-Canada trade relations following President Trump’s statement about potentially imposing a 10% tariff on US imports from Canada. This action was suggested as a response to an anti-tariff advertisement released by the provincial government of Ontario. Although initial discussions to halt trade negotiations were reported, the situation escalated with the imposition of a new tariff, even after Ontario agreed to pause the ad campaign.
Supreme Court to Rule on Reciprocal Tariffs
The legality of President Trump’s reciprocal tariffs is heading to the Supreme Court, with oral arguments scheduled for November 5th. Lower courts have previously found these tariffs to be illegal, based on an emergency authority claim. A Supreme Court ruling in favor of these prior decisions would necessitate the refunding of collected tariffs and could limit the President’s authority to impose tariffs primarily to well-founded sections of US trade law. An announcement of the final ruling is anticipated by late 2025 or early 2026.
Government Shutdown Impact
The prolonged US government shutdown, now in its fifth week, continues to negatively affect market sentiment and the broader economy. The shutdown has led to delays in the release of crucial economic data, including unemployment claims, payroll reports, trade balance figures, retail sales, PPI, housing starts, industrial production, and leading indicators. Bloomberg Economics estimates that 640,000 federal workers could be furloughed, potentially increasing jobless claims and pushing the unemployment rate to 4.7%.
Global Markets Show Strength
Overseas stock markets are also performing well. The Euro Stoxx 50 reached a new record high, climbing 0.34%. China’s Shanghai Composite hit a 10-year high, closing up 0.70%. Japan’s Nikkei Stock 225 also set a new record high, with a sharp increase of 2.17%.
Interest Rates Outlook
December 10-year T-notes experienced a decline of 3 ticks today, with the 10-year T-note yield rising by 1.7 basis points to 3.993%. T-note prices are under pressure due to the rally in stocks, which has diminished the safe-haven appeal of government debt. Reduced demand for T-notes also stems from the preliminary US-China trade agreement announced earlier in the week.
However, losses in T-notes are being contained by expectations that the FOMC will announce an interest rate cut and an end to quantitative tightening at their meeting today. Underlying support for T-notes also comes from concerns about the government shutdown, which could lead to further job losses, reduced consumer spending, and a weakened US economy, potentially encouraging the Fed to continue its easing cycle.
European government bond yields are trending lower. The 10-year German bund yield is down 0.2 basis points to 2.621%, and the 10-year UK gilt yield is down 0.3 basis points to 4.397%. Swaps indicate a 1% chance of a 25 basis point rate cut by the European Central Bank at its next policy meeting on October 30th.
US Stock Movers
Semiconductor Sector Shines
Nvidia (NVDA) surged over 4%, leading gains in the semiconductor industry. This rise followed President Trump’s comments about discussing Nvidia’s Blackwell artificial intelligence processors with Chinese President Xi Jinping. Lam Research (LRCX) and Advanced Micro Devices (AMD) also saw gains exceeding 3%. Micron Technology (MU), Applied Materials (AMAT), and KLA Corp (KLAC) were up more than 2%, while Marvell Technology (MRVL), ASML Holding NV (ASML), and ARM Holdings Plc (ARM) rose more than 1%.
Top S&P 500 Gainers
Teradyne (TER) gained over 15% after reporting Q3 net revenue of $769.2 million, exceeding the consensus of $745.1 million. The company also forecast Q4 revenue between $920 million and $1 billion, significantly above the consensus estimate of $820.5 million.
Seagate Technology Holdings Plc (STX) climbed more than 15% following its Q1 adjusted EPS of $2.61, which surpassed the consensus of $2.37. For Q2, the company projected adjusted EPS between $2.55 and $2.95, with the midpoint above the consensus of $2.67.
Bloom Energy (BE) rose over 13% after reporting Q3 adjusted EPS of 15 cents, significantly better than the consensus of 7.9 cents.
Top Dow Jones Industrials Gainer
Caterpillar (CAT) led gains in the Dow Jones Industrials, up more than 11%. The company reported Q3 adjusted EPS of $4.95, exceeding the consensus estimate of $4.51.
Other Notable Gainers
Centene (CNC) gained over 7% after reporting an unexpected Q3 adjusted EPS profit of 50 cents, compared to an expected loss of -15 cents. The company also raised its full-year adjusted EPS forecast to $2.00 from $1.75, surpassing the consensus of $1.67.
Cognizant Technology Solutions (CTSH) led Nasdaq 100 gainers, up more than 6%. The company reported Q3 revenue of $5.42 billion, exceeding the consensus of $5.32 billion, and raised its full-year revenue forecast to $21.05 billion-$21.10 billion, above the consensus of $20.96 billion.
Leading S&P 500 Losers
Fiserv (FI) saw a significant decline of over 44%, leading S&P 500 losers. The company lowered its full-year adjusted EPS estimate to $8.50-$8.60 from a previous range of $10.15-$10.30.
Avantor (AVTR) fell more than 15% after reporting Q3 net sales of $1.62 billion, below the consensus of $1.65 billion.
Leading Nasdaq 100 Losers
Verisk Analytics (VRSK) led Nasdaq 100 losers, down over 13%. The company forecast full-year adjusted EPS of $6.80 to $7.00, below the midpoint consensus of $7.00.
Other Notable Losers
Garmin Ltd (GRMN) dropped over 12% after forecasting full-year revenue of approximately $7.10 billion, which is below the consensus of $7.15 billion.
Generac Holdings (GNRC) declined over 8% after reporting Q3 net sales of $1.11 billion, weaker than the consensus of $1.19 billion. The company also revised its full-year adjusted EBITDA margin downwards to 17% from a previous outlook of 18% to 19%.
Smurfit WestRock Plc (SW) fell over 7% after reporting Q3 adjusted EBITDA of $1.30 billion, slightly below the consensus of $1.32 billion.
Dow Jones Industrials Loser
Boeing (BA) led Dow Jones Industrials losers, down more than 3%. The company reported a Q3 core share loss of -$7.47, significantly wider than the consensus loss of -$4.44.
Mondelez International (MDLZ) decreased by more than 3% after cutting its full-year adjusted EPS estimate to a decline of -15%, from a previous estimate of down -10%.
Main Highlights
Stock markets saw broad gains, reaching new all-time highs, driven by positive developments in US-China trade relations and the anticipation of a more dovish stance from the Federal Reserve. Strong quarterly earnings reports from several key companies further supported the rally, although some companies reported weaker-than-expected results, leading to significant stock price declines.
The Federal Reserve’s upcoming policy decision is a key focus, with expectations of an interest rate cut and a potential halt to quantitative tightening. International markets also reflected a bullish sentiment, with major indexes in Europe and Asia posting significant gains.