(Oct 28): Wall Street’s hopes the US and China are nearing a trade deal lifted riskier assets, with stocks hitting all-time highs amid a rally in crypto. As demand for safety waned, gold fell alongside short-term bonds.
The S&P 500 climbed 1.2% as Chinese and US trade negotiators have lined up an array of diplomatic wins for Donald Trump and Xi Jinping to unveil at a summit this week. With further Federal Reserve interest-rate cuts on the way, the profit outlook is looking increasingly brighter.
“The market is on fire,” said Louis Navellier at Navellier & Associates. “This reflects strong optimism about future earnings potential. Today’s catalyst is the news that negotiations with China over tariffs are expected to go well. Needless to say, the trend is our friend.”
Corporate America appears fairly unscathed by tariffs, with firms protecting margins through price hikes and cost cuts. Sales beats for S&P 500 companies are running at a four-year high.
On Wednesday and Thursday, five firms that account for about a quarter of the US benchmark — Microsoft Corp, Alphabet Inc, Meta Platforms Inc, Amazon.com Inc and Apple Inc — will report results. A gauge of the “Magnificent Seven” megacaps jumped 2.6%.
“With the Fed on track to cut rates, extending the run would appear to hinge on this week’s line-up of high-profile earnings releases,” said Chris Larkin at E*Trade from Morgan Stanley. “And it may, barring any surprises in US-China trade negotiations.”
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The S&P 500 topped 6,875 — notching its best three-day rally since May. While most major groups gained, breadth was not amazing. “Ultimately advances need breadth to sustain themselves,” said Jonathan Krinsky at BTIG.
Treasury two-year yields rose two basis points to 3.5%. The dollar fell. Gold broke below US$4,000.
Trump told reporters on Monday that “I really feel good” about a deal with China, after officials unveiled a slew of agreements to ease tensions. While markets cheered the latest developments, some analysts cautioned the deal now teed up for Trump and Xi to sign in South Korea ignored thorny issues.
See also: Wall Street goes risk-on as trade optimism grows
Fundamental fights over national security appeared untouched, they said, along with Trump’s stated core mission of rebalancing trade. Making that harder, Chinese investment into America remains heavily restricted.
“While these developments have lifted market spirits, analysts remain sceptical that the underlying issues — such as national security and tech competition — will be fully resolved,” said Fawad Razaqzada at City Index and Forex.com. “Nevertheless, traders have embraced the risk-on mood.”
To Mark Hackett at Nationwide, tailwinds for equity markets are significant, with technicals intersecting with fundamentals as risks fade.
“Moving forward, a cascade of tailwinds will support markets in coming months, including strong seasonality, resolution of trade disputes, fiscal stimulus, and easing monetary policy,” he said.
This earnings season is standing out as analysts had set the bar higher by raising projections heading into it. Robust earnings and signs of sustained investment in artificial intelligence are countering threats to stocks from trade headlines and the government shutdown.
“With companies having reported strong third-quarter results so far amid a favorable backdrop, we expect US stocks to rally further in the coming months,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “So, we maintain our attractive view on US equities, forecasting the S&P 500 to reach 7,300 by June 2026.”
Microsoft, Alphabet, Amazon and Meta are projected to post a combined US$360 billion in capital expenditures in their current fiscal years, much of it related to AI. That spending is expected to jump to nearly US$420 billion next year, according to analyst estimates compiled by Bloomberg.
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“We expect another strong round of megacap tech earnings reports, given the relentless demand for AI technology and infrastructure,” said Clark Bellin at Bellwether Wealth. “While profitability in AI remains an unknown, investors right now are willing to overlook this as the AI arms race heats up.”
As champions of the tech-driven bull run, quarterly earnings from the Magnificent Seven this week can help investors decipher whether artificial intelligence (AI) hype is masking a bubble, according to Hardika Singh at Fundstrat Global Advisors.
“But for me, those concerns in and of themselves aren’t enough to run for the hills,” Singh noted. “AI is transforming every single industry, and as I keep repeating, we’re literally in such early innings for this secular cycle that being worried about valuations and froth would be short-sighted.”
To Matt Maley at Miller Tabak, the most-important issue will be the comments about the future rate of spending on AI from the hyperscalers.
“Expectations are very high on this front, so there are some risks involved,” he said. “However, since there hasn’t been any signals that these companies will back off on their spending, these high expectations seem to be well placed.”
“Our view remains firmly risk-on into 2026, with our base case for a further melt-up in risk assets in the coming months,” said Max Kettner at HSBC.
Among the various catalysts, he cited: further signs of US growth resilience, subdued sentiment and positioning as well as liquidity tailwinds with an end to quantitative tightening and perhaps even more Fed liquidity support to avert a year-end funding squeeze.
Equity analysts are expected to broaden their earnings revisions to more stocks toward the end of the year and into 2026, according to Morgan Stanley strategists.
“We have high conviction in our rolling recovery thesis, which remains out of consensus,” the team led by Michael Wilson wrote.
The third-quarter earnings season has proved stronger than expected and could deliver results beyond what analysts expected prior to “Liberation Day” in April, according to Deutsche Bank AG strategists led by Binky Chadha.
Meantime, hedge funds turned net buyers of US equities last week as softer inflation data fueled bets on imminent Fed rate cuts, pushing major indexes to new highs.
The buying was largely driven by short covering rather than fresh long positions, according to Goldman Sachs Prime brokerage desk’s report for the week ending Oct 24.
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