US equities, led by the Nasdaq's 1.49% gain, rallied significantly after a tentative US-China trade agreement emerged, signaling a de-escalation of tariff threats and commitments on rare earth metals and agricultural purchases, which subsequently reduced safe-haven demand for Treasuries. This positive market reaction is further bolstered by expectations for a 25 basis point Fed rate cut this week and last Friday's slightly softer CPI data. However, underlying concerns persist from the ongoing five-week US government shutdown, new tariffs imposed on Canadian imports, and slowing Q3 earnings growth despite a high beat rate among reporting companies.
US equity markets experienced a broad rally, with the Nasdaq 100 leading gains at +1.49%, primarily driven by a tentative US-China trade agreement. This accord effectively removes the threat of 100% tariffs on Chinese imports, secures China's commitment to purchase US soybeans and not restrict rare earth exports, and reduced safe-haven demand for Treasury securities, pushing the 10-year yield up +2.3 bp to 4.024%. The positive sentiment is further supported by market expectations for a 25 basis point Federal Reserve rate cut this week, with a 99% probability, following September's slightly weaker-than-expected CPI figures of +3.0% year-over-year. Despite the market's optimistic reaction, significant headwinds persist, notably the ongoing five-week US government shutdown which is delaying critical economic data releases and is estimated to furlough 640,000 federal workers, potentially increasing the unemployment rate to 4.7%. Furthermore, new 10% tariffs imposed on Canadian imports by President Trump introduce fresh trade friction, while upcoming Supreme Court arguments on the legality of reciprocal tariffs could limit future executive tariff powers. The impending announcement of a new Fed Chair by year-end, with President Trump seeking a more dovish appointee, adds a layer of monetary policy uncertainty. Corporate earnings season presents a mixed outlook; while 84% of S&P 500 companies have beaten forecasts, marking the best quarter since 2021, overall Q3 profit growth is projected at a modest +7.2% year-over-year, the smallest increase in two years, with sales growth also decelerating. Sector-specific activity includes significant gains in chip stocks like Qualcomm (+12.6%) on AI chip news, and notable M&A transactions such as Novartis's planned acquisition of Avidity Biosciences (+42%) for $12 billion, though some acquirers like Huntington Bancshares (-2%) saw their shares decline.
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strongly positive
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