Stocks Rally on Strong Amazon Earnings

US equity markets posted gains today, primarily fueled by robust corporate earnings, notably Amazon's over 11% surge on strong results and an optimistic outlook, and Nvidia's new AI infrastructure partnerships. This positive sentiment, supported by an extended US-China tariff truce reducing trade barriers, largely overshadowed hawkish remarks from two Federal Reserve Presidents who voiced opposition to recent rate cuts and skepticism about future reductions, despite market pricing in a 65% chance of a December cut. While Q3 earnings season shows a high beat rate, overall profit and sales growth are decelerating, and the ongoing government shutdown continues to weigh on economic data and sentiment.

Analysis

US equity markets are experiencing broad gains today, with the S&P 500 up +0.46% and the Nasdaq 100 leading with a +0.94% increase, primarily driven by strong corporate earnings. Amazon.com surged over +11% following blowout Q3 results and an optimistic forecast, while Nvidia gained over +1% on new AI infrastructure partnerships with major South Korean firms. This positive sentiment is further bolstered by an extended US-China tariff truce, which includes reciprocal tariff reductions and resumed trade in agricultural products.

However, this bullish momentum is tempered by hawkish commentary from Federal Reserve officials, with Kansas City Fed President Schmid and Dallas Fed President Logan expressing skepticism about further rate cuts, citing inflation concerns and economic momentum. Despite this, markets are still pricing in a 65% chance of a 25 basis point rate cut at the December FOMC meeting. Furthermore, while 80% of S&P 500 companies have beaten Q3 forecasts, overall profit growth is projected at a two-year low of +7.2% year-over-year, and sales growth is decelerating to +5.9% from +6.4% in Q2.

The ongoing five-week US government shutdown continues to weigh on economic sentiment and is delaying critical data releases, potentially impacting jobless claims and the unemployment rate. Concurrently, the Supreme Court's upcoming oral arguments on the legality of reciprocal tariffs, with a ruling expected by late 2025 or early 2026, introduce long-term uncertainty regarding trade policy and potential government refunds. The 10-year T-note yield declined to 4.087% due to safe-haven demand and the shutdown's economic implications.

Key Decisions for Investors

• Investors should prioritize companies demonstrating robust earnings beats and strong forward guidance, especially within the technology and AI sectors, given their significant market leadership.
• Closely monitor Federal Reserve communications for any divergence from market expectations regarding future rate cuts, as hawkish sentiment could introduce volatility.
• Assess the potential economic drag from the prolonged government shutdown and the long-term trade policy implications stemming from the upcoming Supreme Court tariff ruling.