By Ben Norris, Senior Vice President, Senior Investment Strategist
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The shutdown of the U.S. Government continued last week – a variety of key economic indicators haven’t been published over the last several weeks as a result. The absence of data has led to market volatility as investors have kept themselves busy by keeping a close eye on trade developments, appearances from Federal Reserve (Fed) policymakers, and a new set of corporate earnings reports.
Last week began on a positive note after President Trump walked back trade threats directed at China from the week prior. Over the weekend Trump posted on Truth Social, “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it.” The renewed trade tensions – Trump threatened 100% tariffs on China – mostly stem from new Chinese restrictions on rare earth mineral exports. These minerals are key inputs in technologies like semiconductors, batteries, and products needed for modern warfare. China is thought to control more than 70% of the global rare earth market so the U.S. and its allies have good reason for concern if exports were disrupted. The apparent easing of tensions was enough to power the S&P 500 (S&P) to a gain of 1.6%, while the technology-heavy Nasdaq rose 2.2%, underscoring the risk-on nature of the rally. Bond markets were closed on Monday in observance of Columbus Day and Indigenous Peoples’ Day.
Tuesday saw stocks give back some of Monday’s gains with the S&P and Nasdaq closing lower while the Dow Jones Industrial Average (Dow) was able to manage a small gain. The session was marked by significant volatility as trade tensions between the U.S. and China flared once again. China instituted new sanctions on the American subsidiaries of a key South Korean shipbuilder that would prevent the company from doing business in China. China cited national security concerns as the primary reason for the move, but investors and politicians perceived this as trade retaliation. President Trump responded in a Truth Social post accusing China of “purposefully not buying our soybeans” and considered a ban on purchases of Chinese cooking oil.
Tuesday also marked two weeks for the government shutdown, which makes it one of the longest shutdowns in history. Progress on reopening the government has been nearly non-existent as the U.S. House remains on recess and both Republican and Democratic leaders refuse to meet and discuss a path forward. In more positive news, the largest banks provided a strong start to the third quarter earnings seasons as each reported better than expected results. Much of the upside came from investment banking activity (mergers, acquisitions, initial public offerings, etc.), trading, and wealth management revenue. Without a doubt, the strong year-to-date performance of stocks, bonds, and certain commodities has boosted performance of big banks. In the coming weeks the third quarter earnings season is expected to show steady top and bottom-line growth with S&P 500 revenues up 6.3% and earnings up 8.0%. Of the 11 S&P sectors, the energy, consumer, and health care sectors are expected to show a decline in growth, while technology stocks are expected to once again drive upside to results. As always, investors will be listening for clues on the state of the economy during earnings calls, and this season will be particularly important while the government shutdown impacts economic data reporting. Some key topics that will garner interest this quarter include the impact of tariffs on margins, inventory management, labor market dynamics, artificial intelligence, consumer spending activity, and general economic conditions.
Stocks bounced back on Wednesday, riding another wave of strong earnings from large banks. Gold was the biggest story of the day with its price eclipsing $4200 per ounce for the first time. A combination of a weaker U.S. dollar, easing monetary policy, trade tensions, and dysfunction in Washington has created the perfect storm for the precious metal, which is now up more than 60% this year.
While major banks reported universally strong earnings, results from some regional banks sparked concerns that credit quality could deteriorate after a historically strong run of credit trends following the pandemic. Markets fell sharply on Thursday after two auto-industry related companies that filed for bankruptcy appeared to weigh on certain banks’ results. A subprime auto lender and a parts supplier both collapsed in September, causing banks to write down loans tied to the companies. The banks (and the analysts that cover them) were quick to claim that the write downs were isolated issues, but as J.P. Morgan CEO Jamie Dimon put it, “when you see one cockroach, there are probably more.” Markets sided with Dimon on Thursday, sending the financial sector down 3%, which in turn dragged the rest of the market to a lower finish. Credits concerns triggered a flight to safety with investors buying U.S. Treasuries and pushing the yield on the 10-year below 4% for the first time in 2025. As the price of a bond rises its yield decreases.
Stocks gained back most of their losses on Friday as another set of regional bank earnings eased some of the credit concerns stirred up the day before. President Trump also helped markets after he signaled that the current approach to tariffs on China was unsustainable. He also confirmed that he still plans to meet with Chinese president Xi Jinping in South Korea later this month. That meeting is seen as a key step on the path to smoothing over the relationship between the world’s two largest economies.
Looking forward to this week, what we will miss in the form of hard economic data we will make up for in corporate earnings reports and remarks from members of the Fed. Inflation data will still be published this week, a bit later than usual and just five days before the Fed’s October meeting. The September CPI report is expected to show that prices are still rising faster than the Fed’s 2% target, but still easing compared to recent levels.
Economic Calendar Sept. 29 to Oct. 3
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, OCT 20 | ||||
| 10:00 am | U.S. leading economic indicators | Sept. | -0.3% | -0.5% |
| TUESDAY, OCT 21 | ||||
| 9:00 am | Fed governor Christopher Waller opening remarks | |||
| WEDNESDAY, OCT 22 | ||||
| 4:00 pm | Fed governor Michael Barr speaks | |||
| THURSDAY, OCT 23 | ||||
| 8:30 am | *Initial jobless claims | Oct. 18 | 240,000 | NA |
| 10:00 am | Existing home sales | Sept. | 4.08 million | 4.0 million |
| 10:00 am | Fed Vice Chair for Supervision Michelle Bowman testifies | |||
| 10:25 am | Fed governor Michael Barr speaks | |||
| FRIDAY, OCT 24 | ||||
| 8:30 am | Consumer price index | Sept. | 0.4% | 0.4% |
| 8:30 am | CPI year over year | 3.1% | 2.9% | |
| 8:30 am | Core CPI | Sept. | 0.3% | 0.3% |
| 8:30 am | Core CPI year over year | 3.1% | 3.1% | |
| 9:45 am | S&P flash U.S. services PMI | Oct. | 54.0 | 54.2 |
| 9:45 am | S&P flash U.S. manufacturing PMI | Oct. | 51.8 | 52.0 |
| 10:00 am | Consumer sentiment (final) | Oct. | 54.4 | 55.0 |
| 10:00 am | *New home sales | Sept. | 710,000 | 800,000 |
*Subject to delay if U.S. government shutdown persists
Links to previously published commentaries can be found at https://www.benjaminfedwards.com/category/market/