Main Highlights
- U.S. stock indexes closed higher on Friday, buoyed by positive corporate earnings, particularly from Amazon and Western Digital.
- Despite strong corporate results, hawkish comments from Federal Reserve officials tempered market optimism regarding interest rate cuts.
- A tariff truce agreement between the U.S. and China provided some support to the markets.
- The ongoing U.S. government shutdown continued to cast a shadow over market sentiment and economic data releases.
- Treasury notes saw volatility, influenced by equity market movements, Fed commentary, and geopolitical concerns.
Market Performance Overview
U.S. stock indexes finished Friday with gains. The S&P 500 Index ($SPX) closed up 0.26%, while the Dow Jones Industrials Index ($DOWI) rose 0.09%, and the Nasdaq 100 Index ($IUXX) climbed 0.48%. December E-mini S&P futures (ESZ25) increased by 0.27%, and December E-mini Nasdaq futures (NQZ25) were up 0.44%.
Corporate Earnings Drive Market Gains
Positive corporate earnings reports were a significant driver for the stock market on Friday. Amazon.com (AMZN) surged over 9% after reporting strong earnings and providing an optimistic outlook. Western Digital (WDC) also saw a boost of over 8% following Q1 net revenue that surpassed expectations.
With over 60% of S&P 500 companies having reported their third-quarter earnings, more than 80% have beaten estimates, signaling a bullish trend for the broader market.
Economic Indicators and Federal Reserve Stance
Minor U.S. economic news provided some support, with the Oct MNI Chicago PMI rising to 43.8, exceeding the expected 42.3.
However, hawkish commentary from Federal Reserve officials introduced a note of caution. Kansas City Fed President Jeff Schmid indicated he voted against the recent interest rate cut, citing a balanced labor market, economic momentum, and persistent inflation. Dallas Fed President Lorie Logan expressed difficulty in supporting further rate cuts without clear evidence of faster inflation decline or a cooling labor market. Cleveland Fed President Beth Hammack suggested holding interest rates steady was preferable to maintain necessary restriction for inflation control.
Markets are currently pricing in a 64% probability of another 25 basis point rate cut at the upcoming FOMC meeting on December 9-10. Projections suggest an overall rate cut of 82 basis points by the end of 2026, bringing the federal funds rate down from the current 3.88% to 3.06%.
U.S.-China Trade Relations and Market Support
An agreement between President Trump and President Xi Jinping to extend a tariff truce, roll back export controls, and reduce trade barriers offered support to stock markets. The U.S. plans to reduce fentanyl-related tariffs on Chinese goods to 10% from 20% and extend a pause on some reciprocal tariffs for an additional year. China, in turn, will resume purchases of U.S. agricultural products. The agreement also includes China pausing controls on rare-earth magnets in exchange for the U.S. rolling back expanded restrictions on Chinese companies.
Q3 Earnings: A Mixed Picture
Third-quarter corporate earnings have shown strength, with approximately 80% of reporting S&P 500 companies exceeding forecasts, on track for the best quarter since 2021, according to Bloomberg Intelligence. Despite this, Q3 profits are anticipated to have grown by 7.2% year-over-year, marking the smallest increase in two years. Furthermore, Q3 sales growth is projected to slow to 5.9% year-over-year, down from 6.4% in Q2.
Supreme Court Review of Tariffs
Markets are closely watching the upcoming Supreme Court oral arguments on November 5 regarding the legality of President Trump’s reciprocal tariffs. Lower courts have previously ruled these tariffs illegal, citing an improper use of emergency authority. A U.S. Supreme Court ruling upholding these decisions could lead to refunds of collected tariffs and limit the president’s ability to impose tariffs outside established trade law. A final ruling is expected by late 2025 or early 2026.
Impact of U.S. Government Shutdown
The lingering U.S. government shutdown, now in its fifth week, continues to weigh on market sentiment and the economy. The shutdown has caused delays in the release of crucial economic data, including unemployment claims, payroll reports, trade balances, retail sales, and industrial production. Bloomberg Economics estimates that approximately 640,000 federal workers furloughed during the shutdown could increase the unemployment rate to 4.7%.
International Market Performance
Overseas stock markets experienced mixed results on Friday. The Euro Stoxx 50 closed down 0.65%, and China’s Shanghai Composite declined by 0.81%. In contrast, Japan’s Nikkei Stock 225 reached a new record high, closing up sharply by 2.12%.
Interest Rate Markets
Treasury Note Performance
December 10-year T-notes (ZNZ5) closed slightly down on Friday, with the 10-year T-note yield falling by 0.2 basis points to 4.095%. T-note prices remained largely unchanged. The strength in equity markets reduced safe-haven demand for T-notes, while hawkish Federal Reserve comments also exerted downward pressure. Concerns about rising inflation, indicated by the 10-year breakeven inflation rate reaching a two-week high of 2.312%, further impacted T-notes negatively.
Despite these pressures, T-notes recovered some losses due to increased safe-haven demand following reports that the U.S. might be planning military action in Venezuela.
Underlying support for T-notes continues to stem from the ongoing U.S. government shutdown, which poses risks of job losses, reduced consumer spending, and economic weakening, potentially prompting further Fed rate cuts.
European Bond Yields
European government bond yields fell on Friday. The 10-year German bund yield decreased by 1.0 basis points to 2.633%, and the 10-year UK gilt yield declined by 1.4 basis points to 4.409%.
Eurozone October CPI eased to 2.1% year-over-year, as expected, while core CPI held steady at 2.4% year-over-year, slightly above forecasts. German September retail sales showed a monthly increase of 0.2% and a yearly increase of 2.8%, marginally exceeding expectations.
Market expectations indicate a 4% chance of a 25 basis point rate cut by the European Central Bank (ECB) at its upcoming policy meeting on December 18.
Key U.S. Stock Movers
Gainers
Amazon.com (AMZN) led the gains, closing up over 9%. The company reported Q3 net sales of $180.17 billion, beating the consensus of $177.82 billion, and projected Q4 net sales between $206 billion-$213 billion, with the midpoint above the consensus of $208.45 billion.
Brighthouse Financial (BHF) rose more than 25% on reports that Aquarian Holdings is in advanced acquisition talks.
Twilio (TWLO) surged over 20% after forecasting Q4 revenue between $1.31 billion and $1.32 billion, exceeding the consensus of $1.29 billion.
Cloudflare (NET) climbed more than 14% after raising its full-year revenue forecast to $2.14 billion, surpassing the consensus of $2.12 billion.
Western Digital (WDC) increased by over 8%, reporting Q1 net revenue of $2.82 billion, higher than the $2.73 billion consensus.
Reddit (RDDT) gained over 8% after reporting 116 million daily active users in Q3, above the consensus of 114.16 million.
Coinbase Global (COIN) was up over 5% following Q3 total revenue of $1.87 billion, surpassing the $1.80 billion consensus.
GoDaddy (GDDY) advanced more than 5% after reporting Q3 revenue of $1.30 billion, exceeding the $1.23 billion consensus, and revising its full-year revenue forecast upwards.
Losers
Dexcom (DXCM) fell over 14%, leading the decliners. The company cut its full-year adjusted gross margin estimate to 61% from 62%, falling short of the 61.8% consensus.
Motorola Solutions (MSI) dropped over 5% after forecasting Q4 adjusted EPS between $4.30 and $4.36, slightly below the $4.35 consensus.
Arthur J Gallagher & Co. (AJG) decreased by more than 4%, reporting Q3 revenue of $3.33 billion, below the $3.49 billion consensus.
Ingersoll Rand (IR) was down over 3% after lowering its full-year adjusted EPS estimate to $3.25-$3.31.
Baxter International (BAX) declined more than 3% following an analyst downgrade.
FMC Corp (FMC) fell over 2% after a sector downgrade.
Upcoming Earnings Reports (November 3, 2025)
Scheduled earnings releases for November 3, 2025, include Clorox Co/The (CLX), Coterra Energy Inc (CTRA), Diamondback Energy Inc (FANG), Eastman Chemical Co (EMN), Hologic Inc (HOLX), IDEXX Laboratories Inc (IDXX), Loews Corp (L), ON Semiconductor Corp (ON), Palantir Technologies Inc (PLTR), Pinnacle West Capital Corp (PNW), Public Service Enterprise Group (PEG), Realty Income Corp (O), SBA Communications Corp (SBAC), Simon Property Group Inc (SPG), Vertex Pharmaceuticals Inc (VRTX), and Williams Cos Inc/The (WMB).
Final Thoughts
U.S. stock markets ended Friday higher, primarily driven by robust corporate earnings. However, concerns regarding potential interest rate policies, fueled by hawkish Federal Reserve commentary, continue to influence market sentiment. The ongoing U.S. government shutdown and developments in international trade relations also remain key factors for investors to monitor.