Stocks Rally on US-China Preliminary Trade Agreement

US equities surged Monday, primarily fueled by optimism surrounding a tentative US-China trade agreement, which includes the US dropping tariff threats and China committing to substantial US soybean purchases, with a formal deal anticipated this week. While new US tariff threats against Canada and the ongoing government shutdown introduced some headwinds, market focus remains on the impending FOMC meeting, where a 25 basis point rate cut is largely expected, and the Q3 earnings season, characterized by high beat rates but decelerating profit growth, ahead of major Magnificent Seven reports.

Analysis

US equities rallied significantly on Monday, primarily driven by optimism over a tentative US-China trade agreement, which includes the US dropping its 100% tariff threat and China committing to substantial US soybean purchases. This deal, expected Thursday, provided a strong positive catalyst.

However, market sentiment faces headwinds from President Trump's new 10% tariff threat on Canadian imports and the ongoing five-week US government shutdown, delaying economic data. Markets are pricing a 98% chance of a -25 basis point federal funds rate cut at this week's FOMC meeting, supported by a slightly weaker-than-expected +3.0% September US CPI.

The Q3 earnings season continues robustly, with 84% of S&P 500 companies beating forecasts, the best quarter since 2021, though profit growth is projected to slow to +7.2% year-over-year. Technology and semiconductor sectors led Monday's gains, exemplified by Qualcomm's +11% surge on AI chip news, while M&A activity remains notable.

Key Decisions for Investors

• Monitor US-China trade deal finalization for sustained market momentum and sector-specific impacts, particularly in commodities and technology.
• Anticipate the highly probable Fed rate cut and potential dovish Fed leadership, adjusting portfolios for interest-rate sensitive assets and fixed income duration.
• Scrutinize Q3 earnings reports, especially from Magnificent Seven companies, focusing on forward guidance and sales growth trends amidst decelerating profit expansion.
• Factor in ongoing geopolitical risks from new Canadian tariffs and the prolonged government shutdown, assessing their potential drag on economic activity and specific industry performance.