Stocks Supported by Solid Tech Earnings

US equities advanced today, led by strong Q3 earnings from Amazon, which surged over 10% on an optimistic forecast, and positive reports from Western Digital and Nvidia's AI expansion. Market sentiment was further bolstered by a stronger-than-expected Oct MNI Chicago PMI and an extended US-China tariff truce. However, gains were partially offset by geopolitical concerns regarding potential US military action in Venezuela and hawkish remarks from Kansas City and Dallas Fed presidents, who expressed reservations about recent rate cuts given persistent inflation and economic momentum, despite market expectations for further easing. The ongoing US government shutdown and an upcoming Supreme Court ruling on reciprocal tariffs also pose broader economic uncertainties, while safe-haven demand pushed bond yields lower.

Analysis

US equity markets advanced today, with the Nasdaq 100 leading gains at +1.14%, primarily driven by strong Q3 earnings reports. Amazon.com surged over 10% following blowout results and an optimistic forecast, while Western Digital and Nvidia also posted significant gains on positive news. This aligns with broader Q3 earnings trends, where 80% of S&P 500 companies have beaten forecasts, marking the best quarter since 2021.

However, market enthusiasm was tempered by several factors. Geopolitical tensions rose with reports of potential US military strikes in Venezuela, increasing safe-haven demand for T-notes, which saw yields decline by 1.8 basis points. Furthermore, hawkish comments from Kansas City Fed President Schmid and Dallas Fed President Logan indicated resistance to further rate cuts, citing persistent inflation and economic momentum, despite market expectations discounting a 62% chance of a December rate cut.

Underlying economic uncertainties persist, including the ongoing five-week US government shutdown, which is delaying critical economic data releases and is estimated to furlough 640,000 federal workers. Additionally, the upcoming Supreme Court review of reciprocal tariffs, potentially leading to refunds and limiting future tariff authority, adds regulatory uncertainty, with a ruling not expected until late 2025 or early 2026. Despite strong Q3 earnings beats, Q3 profit growth is projected to be the smallest in two years at +7.2% y/y, with sales growth also slowing.

Key Decisions for Investors

• Focus on companies demonstrating strong forward guidance and resilient sales growth, as overall Q3 profit and sales growth projections indicate a deceleration.
• Prepare for potential market volatility stemming from the divergence between hawkish Fed commentary and current market expectations for future rate cuts.
• Monitor geopolitical developments and the ongoing US government shutdown for their potential impact on economic stability and market sentiment.
• Evaluate exposure to sectors sensitive to trade policy given the Supreme Court's upcoming review of reciprocal tariffs, which could introduce long-term regulatory shifts.