Despite the limited flow of economic data due to the ongoing government shutdown, it was an eventful week in the markets. We’re now just a few days shy of matching the previous record of 35 days for the longest shutdown in U.S. history. While that’s not exactly cause for celebration, perhaps the looming threat of a SNAP suspension will help expedite a resolution.
🌎 Trade Developments
On the trade front, the United States and China reached a one-year truce. The U.S. agreed to lower the fentanyl-related tariff by 10%, bringing China’s total tariff rate down to 45%. In exchange, China agreed to postpone its planned export controls on rare earth elements.
💰 Corporate Earnings
Earnings season continues to impress. So far, S&P 500 companies have reported an average earnings growth of about 10.5% this quarter. The “MAG7” stocks have posted generally strong results, though investor reactions have been mixed—largely due to sky-high expectations and one notable one-time tax expense among the group.
🏦 Federal Reserve Update
The week also brought the much-anticipated FOMC meeting. As expected, the Federal Reserve cut rates by 25 basis points, bringing the target range to 3.75%–4.00%. The Fed also announced that quantitative tightening will conclude in December. Chair Powell noted rising downside risks to employment but emphasized that the December meeting remains a “live” one for potential further adjustments.
Interestingly, while prediction markets still see a reasonable probability of another cut in December, expectations for four cuts next year have dropped considerably.
📊 Market Performance
The S&P 500 pulled back slightly on Thursday but remains near record highs, trading at 22.8x next year’s earnings. Market breadth has been relatively weak, with the equal-weight index notably underperforming. We continue to see a market that’s largely ignoring negative headlines—perhaps sustained by stronger-than-expected earnings.
That said, a pullback still appears both necessary and healthy, though it hasn’t yet materialized.
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Disclaimer:
The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and does not guarantee future results. All indices are unmanaged and cannot be invested into directly. Economic forecasts may not develop as predicted.