Trump's China Comments Spark Futures Recovery After Fridays Sell Off

Good Morning Investors,

Markets attempt recovery Monday with futures surging 1-1.9% following President Trump's reassuring comments that China relations "will all be fine," providing relief after Friday's 2.7% S&P 500 plunge wiped $2 trillion in market value. The tariff-driven selloff, the worst daily performance since April's "Liberation Day" shock, creates exactly the buying opportunity I've anticipated as structural tailwinds supporting equities remain intact.

Dow ($DIA ( ▼ 0.97% )) futures jump 434 points (1%), S&P 500 ($SPY ( ▼ 0.54% )) futures advance 1.3%, and Nasdaq ($QQQ ( ▼ 0.32% )) futures surge 1.9% as technology rebounds with AMD up 4.2%, Nvidia climbing 3.4%, and Oracle advancing 2%. Trump's Sunday Truth Social post suggesting President Xi "just had a bad moment" and "the U.S.A. wants to help China, not hurt it" reverses Friday's tariff escalation fears.

Vice President JD Vance's weekend comments that the U.S. will negotiate if Beijing proves "willing to be reasonable" while maintaining "far more cards" if not reinforces the administration's negotiating posture rather than commitment to permanent trade conflict.

I had multiple people reach out Friday regarding their investments, which doesn't surprise me given we've been discussing potential October volatility for weeks. When markets sell hard like Friday, it tests your conviction. You must understand why you or your investment advisor positioned you in specific investments and maintain conviction about remaining in those positions.

Education represents a critical component when working with an advisor, which is why I emphasize clients understanding their portfolio relative to their goals. Without that foundation, panic selling during volatility destroys long-term returns. Friday's selloff shouldn't have surprised anyone reading these newsletters over the past month, we've consistently discussed expecting brief October consolidation before year-end strength.

The S&P 500's 2.7% Friday decline, Nasdaq's 2.5% drop, and Dow's 2.7% retreat represented worst daily performances since April 10, just a week after initial "Liberation Day" tariff proposals. However, this selloff creates buying opportunity rather than signaling structural downturn.

Structural tailwinds supporting equities in 2025 remain intact. China's rare-earth export restrictions, while concerning for semiconductor and EV manufacturers, don't alter the broader bullish thesis. Historical pattern this year demonstrates market dips get bought successfully, and I expect the same dynamic continuing.

The pullback may not have bottomed yet, consistent with my expectation for potential correction into November. However, I anticipate stabilization and recovery into year-end as earnings season validates corporate profit growth supporting current valuations.

The S&P 500 breaking below 6700 Friday creates critical test at 6569 support. A decisive break of 6569 would confirm Fall correction potentially producing 5% decline into November. However, if support around 6600-6569 holds, I anticipate push back toward 6790-6800 before encountering resistance.

Breadth and momentum have weakened, suggesting upside likely capped near 6800 short-term. This healthy consolidation phase proves constructive for U.S. equities ahead of renewed advance into year-end, creating better entry points rather than signaling trend reversal.

AAII bullish sentiment rising to 45.9%, shifting from net bearish to net bullish (+10.3%), isn't considered excessive and remains consistent with levels during 2024's 23% S&P 500 gain. However, optimism sustainability faces questions given renewed trade friction.

The sentiment shift occurred before Friday's selloff, suggesting some recalibration likely this week. Elevated bullishness entering corrections typically requires shakeout before sustainable recovery begins, supporting my view that additional downside remains possible.

The government shutdown entering second week creates mounting concerns as October 15 payroll deadline approaches, potentially the first missed payday for federal workers. Office of Management and Budget director Russ Vought's promise of large-scale firings rather than traditional furloughs adds labor market uncertainty.

Indeed data showing federal worker job applications up 157% above January 1 levels and 132% above year-ago demonstrates employment concern spreading. However, private sector hiring may slow given curtailed access to federal business loans, creating complex labor market dynamics.

Healthcare sector faces greatest shutdown-related uncertainty, with ACA subsidy expiration debate determining whether providers like UnitedHealth and Humana lose millions of customers or maintain current enrollment. Trump's Tuesday encouragement for subsidy deal triggered healthcare stock rally, demonstrating market sensitivity to resolution prospects.

JPMorgan launching $1.5 trillion 10-year plan facilitating financing and investment in U.S. strategic industries, including defense, energy, and advanced manufacturing, demonstrates banking sector confidence in domestic economic resilience. The initiative includes hiring more bankers and up to $10 billion direct equity and venture capital investments in fast-growing businesses and key manufacturers.

This "security and resiliency initiative" spanning supply chain, defense, energy, and frontier technologies (AI, quantum computing) positions JPMorgan advantageously for government partnerships advancing domestic capability. The announcement preceding Tuesday's earnings suggests strong Q3 results enabling strategic capital deployment.

Major bank earnings beginning Tuesday with JPMorgan, Goldman Sachs, Wells Fargo, and Citigroup, followed Wednesday by Bank of America and Morgan Stanley, provide the fundamental validation I've emphasized as essential for market sustainability. Goldman losing over a dozen senior investment bankers this year following internal shakeups and sluggish early 2025 dealmaking adds complexity to results interpretation.

Despite departures, Goldman tops Wall Street M&A league tables with fee volumes surging near 2021 levels, demonstrating franchise strength. I expect strong Q3 results across major banks showing net interest margin stability, credit quality maintenance, and robust capital return programs justifying current valuations.

Fed entering blackout period Saturday October 18 ahead of October 31 meeting without critical economic data creates unprecedented policy uncertainty. Import prices, retail sales, hourly earnings, and jobless claims remain delayed by government shutdown, leaving corporate earnings as sole fundamental catalyst.

This week's calendar features NFIB small business optimism Tuesday, Empire Manufacturing and Fed Beige Book Wednesday, plus retail sales and PPI Thursday if government reopens. However, continued shutdown likely delays most releases, maintaining data vacuum through month-end FOMC meeting.

Major earnings beyond banks include Johnson & Johnson and Domino's Tuesday, Abbott Laboratories and United Airlines Wednesday, and Taiwan Semiconductor Thursday, providing consumer healthcare, restaurants, airlines, and semiconductor insights.

I view Friday's selloff as buying opportunity rather than distribution, though acknowledge volatility hasn't yet subsided with potential additional pullback ahead. The combination of structural tailwinds, earnings season validation, and historical pattern of dips getting bought supports conviction in purchasing quality names on weakness.

Bank earnings this week provide critical test of profit growth justifying current valuations. I expect strong results demonstrating corporate resilience despite macro headwinds, catalyzing recovery from Friday's tariff-driven panic. The S&P 500 closing near year-end highs remains my base case despite near-term consolidation.

Markets attempt recovery Monday following Trump's reassuring China comments reversing Friday's tariff panic that erased $2 trillion in market value. The 2.7% S&P 500 decline represented worst performance since April's "Liberation Day" shock, creating buying opportunity as structural tailwinds remain intact.

Friday tested investor conviction, prompting outreach from multiple readers concerned about positions. This reinforces why education about portfolio positioning relative to goals proves essential for maintaining discipline during volatility. We've discussed October consolidation potential for weeks, Friday's selloff shouldn't have surprised disciplined investors.

I view the pullback as healthy correction before year-end strength, though acknowledge additional downside possible if 6569 support breaks. Bank earnings beginning Tuesday provide fundamental validation, with strong results likely catalyzing recovery as tariff concerns moderate ahead of Trump-Xi negotiations.

The government shutdown entering week two adds complexity, particularly with October 15 payroll deadline approaching. However, corporate earnings replacing delayed economic data as primary catalyst favors equity strength as Q3 results demonstrate profit growth supporting current valuations.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered investment advice. Please consult with your financial advisor regarding your specific situation.