Stocks demonstrated resilience this week, fueled by hopes of a potential easing of U.S.–China trade tensions and the anticipation of further interest rate cuts by the Federal Reserve.
Trading this week was volatile, as investor sentiment swung repeatedly between positive and negative. This was mainly because of conflicting headlines about U.S.–China trade disputes, which have been a major driver of market volatility in recent months.
Concerns about the financial health of institutions exposed to recently failed auto parts companies added to market volatility, overshadowing an otherwise strong start to the earnings season.
The S&P 500 closed at 6,664 on Oct. 17, up by 1.7 percent for the week.
The Dow Jones Industrial Average climbed by 1.56 percent to end at 46,190.
The technology-heavy Nasdaq composite rose by 2.14 percent to 22,679, while the Russell 2000 fared the best with a 2.4 percent gain.
Market volatility, as measured by the CBOE volatility index (VIX), spiked from about 20 at the beginning of the week to approximately 28 on Oct. 16, before retreating back to about 20 by market close on Oct. 17.
The index, often referred to as the “fear index,” is a key measure of market expectations for near-term volatility, as reflected in S&P 500 index option prices.
Stocks opened sharply higher on Oct. 13, as the buy-the-dip crowd returned to the market following the previous week’s sell-off. Investors snapped up tech and small-cap shares, sending the Nasdaq and Russell 2000 indexes up by more than 2 percent for the day.
Equity investors were encouraged by signs of easing U.S.–China trade tensions. Both sides had signaled over the weekend their intention to resolve differences through negotiation rather than confrontation.
One of the signs came from President Donald Trump.
Another factor contributing to the rebound in equities was an announcement by OpenAI that it will co-develop artificial intelligence (AI) accelerators with Broadcom, adding momentum to the weeks-long rally in semiconductor stocks.
Broadcom (AVGO) share prices gained close to 10 percent in the Oct. 13 trading session, while the PHLX semiconductor index (SOX) gained close to 5 percent.
The situation took a sharp turn on the morning of Oct. 14, as U.S.–China trade tensions reemerged. Beijing began imposing additional port fees on U.S.-owned and U.S.-operated vessels, as well as those built or flagged in the United States, while exempting Chinese-built ships. The news prompted a wave of stock sell-offs.
Losses moderated following a couple positive headlines, helping markets close mixed.
Walmart announced a partnership with OpenAI to enable customers to shop directly on the ChatGPT platform using instant checkout. The retail giant’s share prices rose by nearly 5 percent, closing at a new all-time high.
At the same time, Federal Reserve Chairman Jerome Powell stated that while the outlook for employment and inflation hasn’t changed since September, “the downside risks to employment appear to have risen.”
Equity analysts interpreted this statement as a hint of an imminent interest rate cut following the Fed’s next monetary policy meeting from Oct. 28 to Oct. 29.
“Jerome Powell highlighted the eventual end of quantitative tightening and noted potential liquidity issues,” David Russell, global head of market strategy at TradeStation, told The Epoch Times. “These comments push the narrative in a dovish direction.
“He also suggested that tariffs aren’t causing inflation. Powell isn’t waiting to get in the holiday spirit. Christmas might come early from the Fed.”
Equity markets braced for a roller coaster ride through the rest of the week.
Solid earnings pulled investor sentiment in one direction, while concerns over the balance sheets of financial institutions pulled it in the other, adding to the volatility caused by trade headlines.
Investor sentiment was firmly positive on the morning of Oct. 15, buoyed by solid results from Bank of America, Morgan Stanley, and ASML. However, sentiment faded by the afternoon and turned negative on Oct. 16.
Investors were rattled by JPMorgan Chase’s disclosure of a $170 million charge-off related to the bank’s wholesale lending to subprime lender Tricolor.
Tricolor was one of several auto companies to declare bankruptcy in recent months, resulting in losses for lenders and raising concerns about the health of financial institutions’ balance sheets.
Investor sentiment turned positive again on Oct. 17 following encouraging comments from Trump on U.S.–China trade, helping major equity averages recover some of the previous day’s losses and end the week in the green.
Richard Saperstein, chief investment officer at New York City-based Treasury Partners, remains optimistic about equities.“We believe stocks have figured out how to navigate tariffs and adapt to the changing tariff policy out of Washington,” he told The Epoch Times. “Investors are more focused on earnings, deregulation, and AI productivity than tariffs, which have largely been priced into markets.”
Saperstein expects companies across the board to report solid third-quarter revenue and earnings growth, driven by margin improvements from reduced labor costs.
“This earnings season is important to gauge the overall health of the bull market,“ he said. ”Investors will closely examine technology earnings as AI and data center [capital expenditures] are increasingly being called into question in terms of how this spending may or may not be leading to profits.”
Saperstein also expressed concerns about market valuations following the multi-week rally.
“Given the 100 [percent] growth in the S&P 500 over the last five years, investors should revisit their asset allocations to determine if equity exposure should be reduced,” he said.
“Outside of periodic portfolio rebalancing, our message to investors is to maintain full equity allocations with an overweight in large-cap technology. Long-term, high-quality municipal bonds remain very attractive at 4.5 [percent] tax-free yields.”
