Futures slip, bank earnings ahead, Powell to speak - what’s moving markets
Investing.com -- U.S. stocks closed sharply lower on Friday after a late-session selloff triggered by President Donald Trump’s threat to impose steeper tariffs on China.
Trump accused Beijing of “becoming very hostile” over its restrictions on rare earth metals, a critical input for technology and defense manufacturing.
The Dow Jones Industrial Average dropped 878.82 points, or 1.9%, to 45,479.60. The S&P 500 slid 2.71% to 6,552.51, its steepest one-day fall since April 10, while the Nasdaq Composite sank 3.56% to 22,204.43.
Earlier in the session, equities were trading firmly higher, with the Nasdaq hitting a record intraday high before Trump’s comments reversed the momentum.
Volatility surged alongside the retreat, with the CBOE VIX jumping above 22, snapping a months-long stretch of calm as investors moved quickly to hedge against deeper losses through the options market.
The late decline erased the S&P 500’s weekly advance, leaving the index down 2.4% for the week. The Dow lost 2.7% over the same period, while the Nasdaq ended the week 2.5% lower.
Looking ahead to this week, attention will largely center on the start of third-quarter earnings, but the political backdrop in Washington is also in focus as investors watch for any sign of progress toward ending the government shutdown that began on October 1.
Markets have so far taken the shutdown in stride, though market strategists warn that the economic impact will grow the longer it persists. Travel disruptions are already emerging, and the suspension of government operations is beginning to affect key data releases.
The monthly jobs report scheduled for October 3 has been postponed, and investors are now watching to see whether next week’s releases, including inflation and retail sales figures, will also be affected.
RBC Capital Markets strategists note that betting markets now see a shutdown lasting more than 30 days as the most likely outcome, a shift that could sharpen labor market worries.
While the strategists say “the China tariff news on Friday had much more to do with the drop in the S&P 500,” they argue that the move in expectations toward a longer shutdown is not "doing the U.S. equity market any favors.”
The Bureau of Labor Statistics said the consumer price index (CPI), initially due this Wednesday, will now be released on October 24.
If the shutdown continues into next week, economists warn that the October employment report could also be distorted, complicating interpretation of the data at a time when markets are highly sensitive to signals on inflation, growth and Fed policy.
U.S. banks to kick off third-quarter earnings season
Investors will mainly focus on quarterly results from major U.S. banks this week for a read on the economy’s underlying strength.
With equity valuations sitting near five-year highs and concerns simmering over stretched enthusiasm around technology and artificial intelligence, a solid third-quarter earnings season will be key to sustaining market momentum.
JPMorgan, Goldman Sachs, Wells Fargo and Citigroup are set to report on Tuesday, marking the formal start of earnings season. Bank of America and Morgan Stanley will follow on Wednesday.
Barclays analyst Jason Goldberg expects third-quarter results to show “higher net interest income (NII), increased fees, positive operating leverage and continued share buyback,” with median bank EPS seen rising 12% year-on-year and slightly above the prior quarter.
He forecasts revenue growth of about 5% for a fourth straight quarter and sees tangible book value increasing again, helped by lower long-term rates, with the median bank delivering roughly a 1.1% return on assets (ROA) and 12% return on equity (ROE).
Beyond the banks, TSMC and American Express are also set to report earnings this week, which will offer additional signals on demand trends across global tech supply chains and consumer spending.
What analysts are saying about U.S. stocks
Morgan Stanley: "The set-up for a correction within this new bull market was in place given elevated positioning, valuation anxiety, and seasonals. Unexpected trade escalation provided the catalyst. If we don’t see near-term de-escalation, we think a larger than expected correction is likely."
Evercore ISI: "Stocks were headed into 3Q25 earnings season with improved sentiment vs. the first two quarters of the year, when the mood was cautious in 2Q and dismal in 1Q."
"Optimism has been underpinned by a stable economy, the Fed cutting “Because It Can”, revived Capital Markets Activity, and partnership and investment tie up announcements driving the structural AI theme. Meanwhile, the S&P 500 at 25.6x trailing P/E is “priced near perfection”. All the more so with last Friday’s U.S./China escalation, stirring volatility and stock correlations from “complacent” low levels. High Bars mean stock and Index reactions to earnings are likely to be varied and violent."
RBC Capital Markets: "One thing that’s clear to us coming into 3Q25 reporting season is that the biggest market cap names in the S&P 500 and the Tech sector have been carrying a heavy earnings burden for the S&P 500, and if earnings sentiment for these parts of the U.S. equity market fade, we think it will be difficult for the S&P 500 to avoid a near-term pullback.
BTIG: "It already appears that China rhetoric is being backtracked, and with the SPX nearing its 50 DMA for the first time in six-months, a reflex bounce should not be surprising. There is enough damage below the surface, however, to suggest this is the start of a deeper pullback, at least towards the 6350-6400 zone, and therefore we would fade any relief rally back towards 6650-6700."