Stocks Rise as Powell’s Remarks Reinforce Fed Bets: Markets Wrap
(Bloomberg) — A volatile session on Wall Street saw stocks rebounding as Federal Reserve Chair Jerome Powell reinforced speculation that officials are on track to cut rates in October amid a weakening labor market.
Following a slide that drove the S&P 500 down as much as 1.5%, the gauge advanced. Short-dated Treasuries outperformed. A big widening move was seen across the dollar swap spread curve as Powell also indicated the central bank may stop shrinking its balance sheet in the coming months. The dollar wavered. Gold hovered near all-time highs.
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To Michael Feroli at JPMorgan Chase & Co., Powell’s remarks were “strong confirmation” of bets on a Fed rate cut at its next meeting. At Evercore, Krishna Guha noted that the fact that the outlook for the dual-mandate objectives remained largely unchanged confirms officials are set to ease this month.
“Jerome Powell highlighted the eventual end of quantitative tightening and noted potential liquidity issues,” said David Russell at TradeStation. “These comments push the narrative in a more dovish direction.”
Fed officials have been winding down the central bank’s balance sheet since 2022 — a process known as quantitative tightening — reversing trillions of dollars of asset purchases designed to stimulate the economy after the pandemic struck. Earlier this year, the Fed slowed the pace by reducing the amount of bond holdings it lets roll off every month.
It’s worth noting that the bounce in risk assets actually started gaining steam before Powell’s comments. That was when Trade Representative Jamieson Greer told CNBC that President Donald Trump was still set to meet his Chinese counterpart Xi Jinping, bolstering hopes that tariff negotiations are still on the table.
Resurgent trade tensions slammed Wall Street earlier Tuesday as China sanctioned US units of a South Korean shipping giant, threatening more retaliation. Investors also kept a close eye on the unofficial start of the US earnings season, with a gauge of big banks jumping after solid results.
Read: Banks’ Stock Buybacks Jump $10 Billion After Easier Stress Test
“It remains to be seen whether the US and China will come to some sort of an agreement, perhaps an extension of the tariff truce,” said Fawad Razaqzada at City Index and Forex.com. “That scenario looks more likely than a complete breakdown into a full-blown trade war. However, the risks are undeniably rising.”
It is possible we could see more two-way volatility in the near term for global tech and chip sectors amid ongoing US-China talks, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
“Nonetheless, we remain cautiously optimistic that both sides will ultimately pursue a negotiated resolution, given the significant economic stakes,” she said.
The brief respite in the stock selling on Monday gave way to a very volatile session, with lofty valuations adding to potential economic damage from the US government shutdown and trade uncertainty.
Couple that with signs the S&P 500 — now in its fourth year of a bull market — is due for a retrenchment, and it’s clear why anxiety is creeping up. The index has gone 97 sessions without a 5% pullback, compared with its long-term average of 59 days, Bloomberg data through Oct. 13 show.
Read: Billionaire Paul Tudor Jones Sees Nasdaq Higher by End of Year
A record share of global fund managers said artificial intelligence stocks are in a bubble following a torrid rally this year, according to a survey by Bank of America Corp.
About 54% of participants in the October poll indicated tech stocks were looking too expensive, an about-turn from last month when nearly half had dismissed those concerns. Fears that global stocks were overvalued also hit a peak in the latest survey.
Fund managers’ equity allocation also reflects some optimism. The BofA survey showed exposure to US stocks rose to the highest in eight months — stretching back to before tariff anxieties took hold. Worries about a recession subsided to the lowest since early 2022.
It’s hard not to see “some frothiness in different sectors,” Citigroup Inc. Chief Financial Officer Mark Mason said on the bank’s third-quarter earnings call in response to a question from a reporter about artificial intelligence.
“I feel good about our business and our ability to cover clients,” he went on. “But it’s hard to look at how equity valuations and multiples sit today and not think there are some sectors that are likely frothy and overvalued. But we’ll see how those play out over time.”
“As investors shift their focus to third-quarter earnings, we believe they should not shy away from opportunities to buy pullbacks, as we suspect a multi-week consolidation phase has begun as we enter the fourth year of this bull market,” said Craig Johnson at Piper Sandler.
Today marked the unofficial start of earnings season, and Bret Kenwell at eToro noted that markets have a history of beating consensus expectations, so if that’s the case this time around too, it could bring some much-needed reassurance at a time where volatility has resurfaced.
“Earnings helped steady the ship in early April amid heavy volatility, with financials telling a reassuring story about the consumer. Management teams grew even more confident over the summer and investors are now hoping for another positive update,” he said.
Beyond the banks, investors will be keeping a close eye on tech — specifically mega-cap tech and AI-related names.
“They’ll want to know if large tech firms are still spending gobs of money on AI infrastructure, and if recent headlines are any indication, the spending cycle is still firing on all cylinders. Still, with worries of an AI bubble permeating throughout social media, investors want some reassurance that these big capital investments into AI will pay off,” said Kenwell.
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Corporate Highlights:
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon sounded warnings on the potential for a deterioration in credit quality, a cautionary note that put a damper on the firm’s surge in trading and investment-banking revenue. Goldman Sachs Group Inc. posted record third-quarter revenue boosted by a rapid pace of growth in its investment bank that eclipsed Wall Street rivals. Goldman Sachs told staffers to expect an additional round of job cuts this year as the bank seeks further savings across its businesses and takes advantage of the opportunities presented by artificial intelligence. Citigroup Inc. beat Wall Street revenue estimates across all five of its major business lines, a haul that’s helping the firm manage rising compensation costs and a plan to sell its retail unit in Mexico. Wells Fargo & Co. raised a key profitability metric, giving its first major update about the bank’s next growth target after the removal of regulatory restraints it had operated under for more than seven years. BlackRock Inc. pulled in $205 billion of client money in the third quarter as the world’s largest fund manager expanded its footprint in private credit and alternative assets. Advanced Micro Devices Inc., Nvidia Corp.’s nearest rival in AI processors, said Oracle Corp. will deploy a large batch of its forthcoming MI450 chips next year. Alphabet Inc.’s Google aims to invest about $15 billion building an AI infrastructure hub in southern India over the next five years, making its biggest bet on the fast-growing country. Walmart Inc. is teaming up with OpenAI to enable shoppers to browse and purchase its products on ChatGPT, the retailer’s latest push to incorporate artificial intelligence. Domino’s Pizza Inc. posted better-than-expected quarterly results, fueled by demand for promotions and stuffed crust pizza. Johnson & Johnson said it plans to separate its slower-growing orthopedics business from the rest of the company within 18 to 24 months, giving its innovative drug and device operations more breathing room as the Trump administration pressures pharmaceutical companies to lower prices in the US. General Motors Co. is incurring $1.6 billion in charges tied to its pullback from electric vehicles, a stark indication of the damage that US policy changes will inflict on plug-in cars. Boeing Co. delivered 160 aircraft during the third quarter, the most since 2018 and an indicator the planemaker is rebounding from the turmoil that damaged its finances and reputation. Boeing and Airbus SE are suffering “unprecedented” delays in certifying and delivering aircraft, stifling airlines’ growth and plans to decarbonize, customers say. Instagram, which is owned by Meta Platforms Inc., will prohibit users under 18 from seeing content considered inappropriate for a PG-13-rated movie, extending teen protections that were rolled out last year. HP Inc. received an upgrade to buy from hold at HSBC, which sees momentum for the company’s personal computers and printers improving. ConocoPhillips’ Chief Executive Officer Ryan Lance said that there’s little sign of supply-demand weakness right now to justify bearish sentiment in the oil market. BP Plc said weak oil trading undercut profit while production increased for a second straight quarter, offering investors a mixed snapshot as the energy giant continues efforts to improve performance. Spotify Technology SA’s push into audiobooks appears to be catching on, with more people using the service and publishers giving the streaming company credit for recent growth. Rayonier Inc. agreed to buy PotlatchDeltic Corp. in an all-stock deal valued at about $3.4 billion that would create the second-largest publicly traded timber and wood products company in North America. The overwhelming majority of Banco Sabadell SA’s customers who are also shareholders spurned BBVA SA’s $19 billion takeover bid, a result that will make it tougher for the larger lender to cross the 50% threshold. Ericsson AB’s shares jumped after its third-quarter profit and cash flow soared thanks to the sale of its its call-routing business Iconectiv. EasyJet Plc jumped following a report that Mediterranean Shipping Co. SA is considering a bid for the budget airline alongside an investment firm. SEB AB’s handling of major sales in EQT AB shares has come under investigation by Sweden’s financial watchdog and its public prosecutors, raising the possibility of penalties including jail terms for those involved. Samsung Electronics Co. is awarding shares and bonuses based on stock price to rank-and-file employees for the first time, the latest step in a compensation overhaul aimed at rejuvenating South Korea’s largest company. LG Electronics India Ltd. soared in its Mumbai trading debut after investors flocked to its initial public offering, marking the best listing day performance for a deal of its size in India. What Bloomberg Strategists say…
“This was Powell’s opportunity to guide markets before the Fed’s upcoming meeting at the end of the month, and his comments provide little reason to think the central bank won’t cut rates.”
—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.
Some of the main moves in markets:
Stocks
The S&P 500 rose 0.2% as of 1:37 p.m. New York time The Nasdaq 100 fell 0.2% The Dow Jones Industrial Average rose 0.8% The MSCI World Index rose 0.1% Bloomberg Magnificent 7 Total Return Index fell 0.7% The Russell 2000 Index rose 1.3% KBW Bank Index rose 2.4% Currencies
The Bloomberg Dollar Spot Index was little changed The euro rose 0.3% to $1.1606 The British pound was little changed at $1.3322 The Japanese yen rose 0.3% to 151.79 per dollar Cryptocurrencies
Bitcoin fell 2.9% to $112,509.64 Ether fell 4.2% to $4,109.45 Bonds
The yield on 10-year Treasuries was little changed at 4.03% Germany’s 10-year yield declined three basis points to 2.61% Britain’s 10-year yield declined seven basis points to 4.59% The yield on 2-year Treasuries declined two basis points to 3.48% The yield on 30-year Treasuries advanced one basis point to 4.63% Commodities
West Texas Intermediate crude fell 1% to $58.89 a barrel Spot gold rose 1% to $4,150.58 an ounce ©2025 Bloomberg L.P.
