Trade Jitters Weigh on Stocks

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.69%.  December E-mini S&P futures (ESZ25) fell -0.20%, and December E-mini Nasdaq futures (NQZ25) fell -0.75%.

Stock indexes settled mixed on Tuesday, with the Dow Jones Industrial Average recovering from a one-month low.  Stocks were pressured on Tuesday as the US-China trade conflict escalated further after China sanctioned five US units of South Korean shipbuilder Hanwha Ocean Co., in the latest in a series of tit-for-tat moves.  Both countries have slapped special port fees on each other’s vessels.  The moves have implications for the global economy, as vessels are responsible for moving more than 80% of international trade.  Additionally, President Trump stated that he may halt trade in cooking oil from China as a retaliatory measure against China’s refusal to purchase US soybeans.

Stock indexes recovered from their worst levels on Tuesday as bond yields declined on dovish comments from Fed Chair Powell, which reinforced expectations that the Fed will cut interest rates at the October 28-29 FOMC meeting. Fed Chair Powell said labor market perceptions remain on a downward trajectory and that the Fed may stop shrinking its balance sheet and end quantitative tightening in the coming months. The 10-year T-note yield fell -2 bp to 4.02%.

Stocks also garnered support on Tuesday on AI optimism after Walmart rose more than 4% after it announced a partnership with OpenAI to enable shoppers to browse and purchase products on ChatGPT. 

The escalation of trade tensions has sparked buying of precious metals as a haven, as gold and silver rallied to new record highs on Tuesday. Also, global bond markets are the recipients of haven demand from the trade turmoil as bond yields declined worldwide.  The 10-year German bund yield dropped to a 3.25-month low of 2.58% and the 10-year T-note yield fell to a 3.5-week low of 4.00%. 

Tuesday’s minor economic news showed that the US Sep NFIB small business optimism index fell -2.0 to 98.8, weaker than expectations of 100.6.

Most stock indexes rallied to record highs last week on optimism that growth in the AI sector and spending on artificial intelligence will translate into corporate profits.  Stocks are also underpinned by hopes that a resilient US economy and additional Fed easing will continue to support the economy.

The shutdown of the US government continues, weighing on market sentiment and delaying key economic reports.  The government shutdown means delays in the release of government reports, including the last two weeks of weekly initial unemployment claims, the Aug US trade report, and the Sep nonfarm payrolls report.  Last Friday, the Bureau of Labor Statistics (BLS) said that it will release the September consumer price report on October 24 if the government shutdown continues into Wednesday, when the Sep CPI report is scheduled for release.  The White House has warned that if the government shutdown lingered, it would trigger widespread dismissals of employees in government programs that don’t align with President Trump’s priorities.  Bloomberg Economics estimates that 640,000 federal workers will be furloughed during the shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.

The markets this week will focus on Q3 earnings results as the Q3 earnings season begins.  Rising corporate earnings expectations are a bullish backdrop for stocks.  According to Bloomberg Intelligence, more than 22% of companies in the S&P 500 provided guidance for their Q3 earnings results that are expected to beat analysts’ expectations, the highest in a year.  However, Q3 profits are expected to have risen by +7.2%, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to +5.9% from 6.4% in Q2. 

The markets are pricing in a 98% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Overseas stock markets settled lower on Tuesday.  The Euro Stoxx 50 fell to a 2-week low and closed down -0.29%.  China’s Shanghai Composite closed down -0.62%.  Japan’s Nikkei Stock 225 dropped to a 1-week low and closed down sharply by -2.58%.

Interest Rates

December 10-year T-notes (ZNZ5) on Tuesday closed up +8 ticks.  The 10-year T-note yield fell -1.5 bp to 4.017%.  Dec -T-notes rallied to a 3.5-week high on Tuesday, and the 10-year T-note yield fell to a 3.5-week low of 3.998%.  The escalation of the US-China trade conflict sparked safe-haven buying of government debt securities.  Also, falling inflation expectations are supportive for T-notes after the 10-year breakeven inflation rate fell to a 3.25-month low on Tuesday at 2.299%.  T-notes also have support amid concerns about the ongoing US government shutdown, which could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates.  

European government bond yields moved lower on Tuesday.  The 10-year German bund yield dropped to a 3.25-month low of 2.583% and finished down -2.6 bp at 2.610%.  The 10-year UK gilt yield fell to a 2-month low of 4.570% and finished down -6.8 bp to 4.590%.

The German Oct ZEW expectations of economic growth survey rose +2.0 to 39.3, weaker than expectations of 41.1.

ECB President Lagarde said the Eurozone economy is “in a good place” as risks to the economic outlook are more balanced and the Eurozone economy has been relatively resilient to tariffs.

UK Aug employment rose by +91,000 in the 3-months ending August, which was weaker than expectations of +125,000.  The ILO unemployment rate rose +0.1 to a 4.25-year high of 4.8% in the 3-months ending August, showing a weaker labor market than expectations of no change at 4.7%.

Swaps are discounting a 2% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Chipmakers and AI infrastructure stocks retreated on Tuesday, weighing on the overall market.  Arista Networks (ANET) closed down more than -5% to lead losers in the S&P 500, and Intel (INTC) closed down more than -4%.  Also, Broadcom (AVGO), Marvell Technology (MRVL), Dell Technologies (DELL), Super Micro Computer (SMCI), and Micron Technology (MU) closed down more than -3%.  In addition, ARM Holdings Plc (ARM) closed down more than -2%, and ON Semiconductor (ON) closed down more than-1%.

The Magnificent Seven technology stocks were mostly lower on Tuesday, a negative factor for the broader market.  Nvidia (NVDA) closed down more than -4%, and Tesla (TSLA), Amazon.com (AMZN), and Meta Platforms (META) closed down more than -1%.  In addition, Microsoft (MSFT) closed down -0.09%. 

Humana (HUM) closed down more than -3% after it lost a lawsuit against the US government that sought to undo cuts to the 2026 bonus payments it receives from the Medicare Advantage program.

Salesforce (CRM) closed down by more than -3% after Northland Securities downgraded the stock to market perform from outperform.

Goldman Sachs (GS) closed down more than -2% after reporting Q3 equities sales and trading revenue of $3.74 billion, below the consensus of $3.94 billion. 

CyberArk Software (CYBR) closed down more than -2% after Barclays downgraded the stock to equal weight from overweight.

JPMorgan Chase (JPM) closed down more than -1% despite raising its full-year net interest income estimate after CEO Dimon said he sees some softness in the US economy.

Navitas Semiconductor (NVTS) closed up more than +26% after unveiling its 100 V GaN FETs, 650 V GaN, and high voltage SIC devices for Nvidia’s 800 VDC AI factory architecture.  This will enable direct conversion from 13.8 kVAC utility power to 88 VDC within the data center power room.

Polaris Inc. (PII) closed up more than +14% after saying it will separate Indian Motorcycle from its portfolio into a standalone company and enter into a definitive agreement to sell a majority stake to Carolwood LP. 

Wells Fargo & Co. (WFC) closed up more than +7% to lead gainers in the S&P 500 after reporting Q3 revenue of $21.44 billion, above the consensus of $21.16 billion. 

Walmart (WMT) closed up more than +4% to lead gainers in the Dow Jones Industrials after announcing that it was teaming up with OpenAI to enable shoppers to browse and purchase products on ChatGPT. 

Caterpillar (CAT) closed up more than +4% after JPMorgan Chase raised its price target on the stock to $650 from $505, citing expectations for accelerating revenue growth. 

HP Inc (HPQ) closed up more than +4% after HSBC upgraded the stock to buy from hold with a price target of $30.

Domino’s Pizza (DPZ) closed up more than +3% after reporting Q3 total domestic stores comparable sales growth of 5.2%, which is better than the consensus of 4.28%. 

Earnings Reports(10/15/2025)

Abbott Laboratories (ABT), ASML Holding NV (ASML), Bank of America Corp (BAC), Citizens Financial Group Inc (CFG), First Horizon Corp (FHN), First Industrial Realty Trust (FR), JB Hunt Transport Services Inc (JBHT), Morgan Stanley (MS), Pinnacle Financial Partners Inc (PNFP), PNC Financial Services Group Inc (PNC), Progressive Corp/The (PGR), Prologis Inc (PLD), Rexford Industrial Realty Inc (REXR), Synchrony Financial (SYF), Synovus Financial Corp (SNV), United Airlines Holdings Inc (UAL).