US-China Tensions Spark Tech Selloff Despite Bank Earnings Surge

Good Morning Investors,

Markets reversed Monday's gains Tuesday with futures declining 0.6-1.7% as US-China tensions reignited through additional port fees on cargo ships, despite major bank earnings crushing expectations. JPMorgan's record Q3 trading revenue and Goldman Sachs' 11% earnings beat validate the fundamental strength I've emphasized, though geopolitical volatility creates the choppy October conditions I anticipated.

Dow ($DIA ( ▲ 0.47% )) futures fall 276 points (0.6%), S&P 500 ($SPY ( ▲ 0.72% )) futures shed 0.9%, and Nasdaq ($QQQ ( ▲ 0.89% )) futures slide 1.7% as AI leaders resume selling with Nvidia and AMD each down over 2%, Tesla and Oracle retreating 3%. The declines follow China and U.S. imposing reciprocal shipping port fees plus Chinese sanctions on five Hanwha Ocean U.S. subsidiaries, escalating trade tensions despite Trump's Sunday reassurance.

Monday's powerful rebound, with S&P 500 surging 1.6% (largest one-day gain since May 27) and Dow jumping 1.3% (best day since September 11), retraced over half of Friday's losses. However, I maintain my view that volatility hasn't subsided, expecting additional retreat despite the bounce as earnings season kicks off amid government shutdown labor market concerns.

JPMorgan ($JPM ( ▲ 0.89% )) crushed Q3 expectations with EPS of $5.07 versus $4.84 expected (5% beat) and revenue of $47.12 billion versus $45.4 billion consensus (4% beat), generating approximately $700 million more revenue than anticipated from trading and investment banking.

Net income jumped 12% to $14.39 billion while revenue advanced 9% year-over-year. The critical insight: trading revenue hit $8.9 billion, a record for Q3 according to CEO Jamie Dimon, demonstrating how Trump administration trade policy volatility drives repositioning flows benefiting diversified banks.

Investment banking strength reflects more relaxed merger stance under current regulators, with proposed capital requirement and stress test easing plus stock markets near records lifting wealth management divisions. This validates my thesis that banks represent primary beneficiaries of current policy environment.

However, Dimon's cautious outlook warrants attention: "While the U.S. economy generally remained resilient, there continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation. As always, we hope for the best, but these complex forces reinforce why we prepare the firm for a wide range of scenarios."

His message, hope for the best but prepare for anything, captures appropriate positioning given current conditions. JPMorgan demonstrates how diversified banks thrive in volatility, turning market uncertainty into trading opportunities while benefiting from business-friendly regulatory environment.

Goldman Sachs ($GS ( ▲ 0.61% )) exceeded expectations with EPS of $12.25 versus $11.00 expected (11% beat) and revenue of $15.18 billion versus $14.1 billion consensus (8% beat). The firm's concentration in Wall Street activities, trading and investment banking generating majority revenue, creates outsized returns during boom periods.

Trading desks benefited from Trump tariff policy market roiling across bonds, currencies, commodities, and stocks. Investment banking revenue climbed 22% in Q3 year-over-year per Dealogic, with activity including mergers and IPOs gaining steam. Stock markets at record highs supported asset and wealth management divisions.

Monday's announcement acquiring Industry Ventures, a $7 billion AUM venture capital firm for $665 million cash and equity plus $300 million performance-based through 2030, bolsters asset management capabilities. All 45 employees joining Goldman with founder Hans Swildens and senior managing directors becoming partners signals strategic commitment.

Goldman shares advancing 37% year-to-date reflect market recognition of franchise strength despite losing over a dozen senior investment bankers this year following internal shakeups and sluggish early 2025 start. The firm still tops Wall Street M&A league tables with fee volumes surging near 2021 levels.

Wells Fargo ($WF ( ▲ 5.1% )) raising return on tangible common equity target to 17-18% from prior 15% guidance provides first major update following June's regulatory asset cap removal after seven years. The metric measuring how efficiently banks generate shareholder earnings demonstrates Wells Fargo's emerging earnings power as constraints lift.

Net income of $5.59 billion ($1.66 per share) compared to $5.11 billion ($1.42 per share) year-ago reflects higher net interest income rising 2% to $11.95 billion, slightly missing $12.01 billion estimates. Investment banking fees totaling $840 million, up 25% year-over-year, reflect deal pipeline payoffs including co-advising Union Pacific's $72 billion Norfolk Southern acquisition.

Wells Fargo ranking seventh in global deal advisement year-to-date, leaping from 17th same period 2024 per Bloomberg data, demonstrates catching rivals in transaction advisory as "animal spirits" drive $1 trillion-plus Q3 deal frenzy.

CEO Charlie Scharf's statement "I am more optimistic than ever about our path forward" following strong results and ROTCE guidance increase validates turnaround progress since taking helm 2019. The 3.3% pre-market stock surge reflects investor enthusiasm for growth phase entering.

BlackRock ($BLK ( ▲ 1.14% )) reporting record $13.5 trillion assets under management, up from $11.48 trillion year-ago, demonstrates continued asset gathering momentum. Net flows to long-term investment funds of $171 billion beat $161.6 billion analyst estimates, with ETFs topping $5 trillion for first time.

CEO Larry Fink's assertion "the scale of the opportunity ahead for BlackRock, our clients and shareholders far exceeds what we've ever seen before" entering "seasonally strongest fourth quarter with building momentum" reinforces confidence despite market volatility.

The $12 billion HPS Investment Partners acquisition completed early Q3 added $165 billion client assets, advancing alternatives total to $663 billion with target raising additional $400 billion by 2030. Performance fees rising 33% to $516 million driven by private markets demonstrates higher-fee business scaling.

Adjusted EPS of $11.55 beating $11.47 estimate with revenue advancing 25% to $6.5 billion validates strategic expansion into alternatives through three major acquisitions in 18 months including Preqin and Global Infrastructure Partners.

My Navitas Semiconductor ($NVTS ( ▼ 2.48% )) call from last week hit the $10 target I outlined, validating the technical breakout thesis. The stock breaking through downtrend resistance demonstrates market recognition of the Nvidia 800-volt HVDC data center architecture opportunity positioning Navitas centrally in power infrastructure buildout.

I continue favoring Navitas in the semiconductor space given the May 2025 Nvidia partnership for next-generation architecture rolling out 2027. While execution risk remains given limited revenue and continued unprofitability, CEO Chris Allexandre's September appointment brings operational expertise critical for scaling commercial production.

The power infrastructure angle remains underappreciated relative to headline AI semiconductor names, creating ongoing opportunity despite recent advance toward my target.

OpenAI's agreement with Broadcom codeveloping 10 gigawatts AI accelerator power represents another massive infrastructure deal following recent AMD partnership. The arrangement leveraging OpenAI's AI capabilities with Broadcom's execution expertise sends positive signals across AI ecosystem, lifting sector stocks Monday.

However, the circular financing concerns I've highlighted intensify. Nvidia, CoreWeave, OpenAI, AMD, Oracle, Intel, and now Broadcom intertwining through investments, product purchases, and partnerships creates loop where sellers subsidize buyers. Bernstein analyst Stacy Rasgon's observation captures the stakes: "[Sam Altman] has the power to crash the global economy for a decade or take us all to the promised land, and right now we don't know which."

This interconnected structure creates systemic risk if any critical link weakens, though current momentum suggests near-term strength continues.

Google ($GOOGL ( ▲ 4.01% )) announcing $15 billion investment over five years building AI infrastructure hub in Visakhapatnam, India, represents its largest investment in the world's most populous nation. The project includes data center, new energy sources, and fiber-optic network partnering with Adani and Bharti Airtel.

Andhra Pradesh targeting 6 gigawatts data center capacity by 2029 positions India as major AI infrastructure beneficiary alongside Amazon's $12.7 billion cloud investment commitment through 2030 and OpenAI's planned 1-gigawatt data center. CBRE projects India data center market investments exceeding $100 billion by 2027.

Google Cloud CEO Thomas Kurian characterizing the hub as "designed to provide full AI infrastructure" serving not just Google's needs but entrepreneurs, enterprises, and commercial organizations demonstrates strategic positioning for regional AI adoption acceleration.

Despite Monday's powerful 1.6% S&P 500 bounce retracing over half Friday's decline, I expect the market to retreat as volatility persists through earnings season. Tuesday's futures weakness resuming Friday's selling validates this caution, with U.S.-China port fees escalation demonstrating geopolitical tensions haven't resolved despite Trump's Sunday reassurance.

Government shutdown entering third week creates labor market monitoring importance, particularly regarding threatened federal worker layoffs rather than traditional furloughs. The October 15 payroll deadline passing increases termination probability, potentially pressuring already-softening employment conditions.

Bank earnings crushing expectations provides fundamental validation I've emphasized as critical for market sustainability. However, strong corporate results don't eliminate geopolitical and policy uncertainties creating tactical trading environment rather than sustained directional strength.

I maintain my view from last week: pullbacks should be bought, though additional downside likely before stabilization. The combination of 6569 technical support, earnings validation, and eventual trade tension moderation supports year-end strength toward my targets despite near-term choppiness.

Major bank earnings crushed expectations with JPMorgan's record trading revenue, Goldman's 11% beat, and Wells Fargo's raised ROTCE guidance validating fundamental strength. These results demonstrate how diversified banks thrive in volatility, but Tuesday's futures weakness resuming Friday's selling confirms my view that volatility persists.

My Navitas Semiconductor call hitting $10 target validates the power infrastructure opportunity I highlighted. Google's $15 billion India investment demonstrates AI buildout accelerating globally despite geopolitical tensions.

I expect additional retreat despite Monday's bounce, with government shutdown and earnings season creating tactical trading environment. However, strong bank results support buying pullbacks toward year-end strength as fundamentals justify current valuations despite near-term choppiness.

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.