Commentary

The S&P 500 rose 1.7% last week, but it is still flat for the month of October, since President Trump rattled the stock market when he announced he would impose an additional 100% tariff on China as well as export controls on “any and all critical software,” beginning on November 1st. These tariffs would raise import taxes on many Chinese goods to 130% as of November 1st, which is only slightly below the 145% level imposed earlier this year. Clearly, President Trump wants to negotiate a better trade deal with China.

Then, on Sunday, October 12th, President Trump changed his tune, saying on Truth Social: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment.” Trump added, “The U.S.A. wants to help China, not hurt it!!!” This conciliatory about-face caused 10-year Treasury bond yields to continue to decline (from 4.15% to 4.00% last week), as stocks began to recover.

The President is obviously playing “good cop” to Treasury Secretary Scott Bessent’s “bad cop.” Bessent accused China of trying to hinder worldwide economic growth. Specifically, Bessent said that China is “in the middle of a recession/depression” and “they want to pull everybody down with them.” He got more specific: “Maybe there is a Leninist business model where hurting your customers is a good idea,” but “if they want to slow down the global economy, they will be hurt the most.” Well said, Mr. Bessent.

Here are the most important developments recently and what they mean:

- The good news is that approximately 20% of the stocks in the S&P 500 will report this week, so I am expecting wave after wave of positive third-quarter sales, earnings, surprises, and guidance. This is just one reason why the second half of October is seasonally strong. The other reason is that the holidays are fast approaching, and since the holidays are a happy time of year when we all get together with family and friends, this positive sentiment tends to boost investor sentiment.

- The 10-year Treasury bond remains at 4% and yields have softened all across the yield curve, so the Fed is expected to cut key interest rates at their FOMC meetings on October 29th and December 10th. I suspect the Fed will also continue to cut key interest rates in 2026, since I am expecting global interest rates to continue to collapse, as Asia and Northern Europe remain in a recession, due largely to aging demographics and shrinking households.

- I am expecting the U.S. to hit 5% GDP growth in 2026, due largely to all the onshoring. Speaking of onshoring, Nvidia announced that the Blackwell GPU wafer has now been manufactured by TSMC at their Arizona plant. Currently, the Blackwell wafers have to be sent to Taiwan to become finished GPUs, but clearly TSMC is making progress.

- The pharmaceutical onshoring is also accelerating and hindering Ireland and Switzerland’s respective economies. The automotive industry continues to expand in five southern states, especially for part suppliers. GM announced a while ago that it was diverting some production from Mexico and investing $4.5 billion in three U.S. plants. Finally, the data center boom is simply incredible and will also help boost GDP growth.

- Deflation continues to envelop China. The latest evidence was that the National Bureau of Statistics announced that home prices declined 0.41% in August, which represents the biggest decline in 11 months. Additionally, the value of home resales declined 0.64% in August, which is the biggest monthly decline this year. China is in the midst of a housing collapse in the past four years and prices declined in all 70 markets surveyed. Due to shrinking households from an aging population, there is no end in sight to China’s housing collapse.

- There are growing reports that the federal government shutdown may persist through Thanksgiving. If some federal employees do not get their paychecks at the end of October, the pressure to resolve that budget impasse will persist. The fact of the matter is, the shutdown is all part of influencing voters for next year’s midterm elections, but so far, many voters are not paying attention, so whatever minority leaders Schumer and Jeffries were striving to achieve has not come to fruition. Fortunately, both the bond and stock markets have not been adversely impacted by the federal government shutdown.

Overall, the market outlook remains positive and has now become earnings-driven, which should propel the market into the year end, outside of any Black Swan events.

*Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.