Stocks Rise as US-China Trade Tensions Ease

Equity markets are broadly higher, with the Nasdaq 100 reaching a 1-week high, primarily driven by easing US-China trade tensions following President Trump's positive comments and robust Chinese economic data, including stronger-than-expected Q3 GDP and industrial production. Optimism surrounding Q3 earnings season also provides support, as 85% of S&P 500 companies have beaten forecasts, despite expectations for slowing overall profit growth. While the ongoing US government shutdown continues to delay economic reports and poses potential risks, leading to safe-haven demand for precious metals, the market is pricing in a 99% probability of a 25 basis point Fed rate cut, with major tech, chip, and crypto-exposed stocks leading gains.

Analysis

Equity markets are broadly higher, with the Nasdaq 100 reaching a 1-week high, primarily driven by easing US-China trade tensions following President Trump's positive comments and upcoming talks. This sentiment is further bolstered by stronger-than-expected Chinese Q3 GDP growth of +1.1% q/q and +4.8% y/y, alongside a +6.5% y/y rise in September industrial production, which supports global growth prospects.

Optimism surrounding the Q3 earnings season also provides significant support, as 85% of S&P 500 companies reporting so far have beaten forecasts, with over 22% of those providing guidance expected to beat analyst expectations. However, overall Q3 profit growth is projected to slow to +7.2% y/y, the smallest increase in two years, and sales growth is expected to decelerate to +5.9% y/y. The market is pricing in a 99% chance of a 25 basis point Fed rate cut at the upcoming FOMC meeting.

Despite the positive momentum, the ongoing US government shutdown, now in its fourth week, continues to weigh on sentiment and delay key economic reports, posing a risk of increased jobless claims and reduced consumer spending. While major tech, chip, and crypto-exposed stocks are leading gains today, precious metals like gold and silver reached all-time highs last Friday, indicating persistent safe-haven demand amidst broader uncertainties.

Key Decisions for Investors

• Monitor the progress of US-China trade talks and their potential to sustain positive market sentiment, as this remains a key catalyst for current equity performance.
• Scrutinize Q3 earnings reports beyond headline beats, focusing on forward guidance and underlying sales growth trends given the projected slowdown in overall profit expansion.
• Consider the high probability of an upcoming Fed rate cut and its implications for various sectors, while simultaneously assessing the economic impact and duration of the ongoing US government shutdown.