Markets Forge Record Highs as Fed, GDP, Tech Earnings and US-China Trade Relations Swirl

Markets Forge Record Highs as Fed, GDP, Tech Earnings and US-China Trade Relations Swirl 

US indices bolstered market confidence with fresh record highs to end the past week. Will a run of key event risk like the FOMC rate decision and tech earnings alongside open-ended themes like the US government shutdown and US-China trade relations help or hinder the tide?

Talking Points:

• The S&P 500 and Nasdaq 100 gapped to record highs to close out this past week following a slightly weaker CPI reading than economists had feared
• As speculative assets continues there measured climb, we face a wave of high-profile event risk while the threat of updates on open-ended themes is particularly high
• Top event risk this week includes: FOMC, ECB and BOC rate decisions; US, Eurozone and Hong Kong Q3 GDP; Apple, Microsoft and Google earnings among many more listings

A Steady March of Risk Build Up Challenged by a Run of Themes?

Though there remains an undercurrent of 'risk appetite' in the financial markets - punctuated by a gap to fresh record highs for the S&P 500 and Nasdaq 100 Friday - the tepid tempo of the climb retains a mood of skepticism. When confronted with a solid momentum, there tends to be less fixation around the 'why' the markets are climbing as speculative interests are drawn into the gravity of FOMO (fear of missing out). When there isn't a chase under way, there is more room for consideration to the balance of risks counterbalancing the expectations of returns on adding funds at or near record highs.

Chart of Google Financial Web Search Interest for ‘Bubbles’

  

Source: Google Trends 

It is worth noting that over the past few weeks there has been a rise in search interest (via Google Trends) in 'stock bubble', 'cypto bubble' and 'AI bubble'. Discussion and awareness around the level of exposure from sentiment-laden capital market benchmarks by public interests has also grown. The build up by so called 'dumb money' (the unflattering reference to retail interest) has hit a significant fervor relative to institutional interest while data shows the percentage of US wealth in equities has hit record highs to reinforce the 'concentration concern.

Chart of Household Equity Holdings as Percentage of Financial Assets (Quarterly)

 

Source: Federal Reserve Economic Database, Board of Governor of the Federal Reserve System

An Overwhelming Amount of Top Tier Event Risk

When faced with a tidal wave of top-level event risk – like we are expecting with this coming week’s docket – it is important to evaluate the practical capacity of its market movement. There is the more constrained potential to move localized assets that can draw directly from specific event risk to shape certain fundamental landscapes, and then there is the significantly higher threshold for developments to alter the course of general sentiment that dictates the global financial system. In the former camp, listings such as the US Conference Board consumer confidence survey; US, Eurozone and Hong-Kong Q3 GDP release and Chinese PMIs are all worthy of our attention. However, to rise to the level of systemic control; we should monitor events that shape more productive trends such as the FOMC rate decision, the top tech company earnings and key deadlines for US-China trade relations.

Calendar of Top Global Macro Event Risk

Source: John Kicklighter

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The FOMC Rate Decision Stands Out

Monetary policy has exacted a significant degree of influence on exchange rate and capital markets through 2025, but that drive has turned more targeted in recent months. That is in part due to a growing disparity in the policy phase of the major players. As important as the European Central Bank’s (ECB) and Bank of Japan’s (BOJ) settings are, both are seen easing up on their respective dovish and hawkish trends in 2025 – the former as it comes to the end of a string of easing moves and the latter as a new government comes into office. More interesting are the Bank of Canada (BOC) and Federal Open Market Committee (FOMC) decisions.

Both are expected to cut their respective benchmark rates by another 25 basis points (bps), to 2.25 and 4.00 percent respectively. The BOC is likely near the end of its cycle having halved its benchmark rate since March of last year. The Federal Reserve on the other hand has only cut its baseline once thus far while its peers have significantly eased. There is a ‘stimulus’ multiplier effect to the perceived accommodation of the US central bank – the world’s largest. If the group doesn’t feel its offerings are as promising as perhaps the market has accounted for, it could prove a drag on enthusiasm.

Scenario Table for FOMC Rate Decision

  
Source: John Kicklighter, Fed Funds Futures

Mag 7 Earnings May Prove the Most Capable for Stoking Volatility

Wednesday will be a particularly busy session for the coming week as after the BOC and Fed rate decisions, we are expected the longest run of ‘Magnificent 7’ stock earnings of any other day this season. We have already taken in Tesla’s figures this past week and Nvidia’s closely-watched corporate report is not due for a few more weeks. Wednesday after the US close, there will be a simultaneous release of earnings from Microsoft, Google and Meta. Those are third, fourth and sixth largest market cap stocks in the United States respectively – not to mention all key players in the AI boom.

Risk trends could very well weather a singular outlier amongst these three, but beware the impact that a consistent bullish or bearish surprise could render in terms of market response. On the following day, after the New York close, we will Apple and Amazon (second and fifth largest market cap) with the added benefit of a moderation in top tier event risk through the subsequent and final Friday trading session, which can allow for a more productive run provided there is surprise.

Implied Earnings Moves for Top Companies Week Oct 28-31

Source: spotgamma.com Implied Earnings Moves Chart 

US-China Trade Relations

Finally, on the list of top fundamental threats to monitor ahead, the attention turns to a more thematic matter that will be shaped by a variety of events. The trade relationship between the United States and China has deteriorated materially over the past week as the Trump Administration has responded to rare earth metal export restrictions by the Chinese government by threatening the imminent restoration of extreme tariffs against its trade partner. This has been a fluid theme these past months which has shifted the focus to headlines and eventually led to a moderation of market-moving potential; but we are facing distinct timelines to consider with this matter.

While there is certain event risk that may contribute to the stakes of this negotiation and the headlines are always unpredictable, it is worth highlighting that President Trump has said he would meet with President Xi on the sidelines of the APEC Summit on Thursday and that there is an open threat by the US to raise tariffs on Chinese imports to 155 percent on November 1st without an equitable resolution. Another delay is the most likely outcome – the second 90-day reprieve expires on November 10th – but beware a scenario where one or both countries look to exact pressure.

Chart of USDCNH Exchange Rate and Key US-China Trade War Dates (Daily)

  
Source: TradingView, John Kicklighter 

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--- Written by John Kicklighter, Global Head of Content