- US equities paused the rally as investors weighed financial jitters.
- The hope is to end the US government shutdown, and the Fed easing boosts risk appetite.
- Earnings season could add another layer of volatility in the stock markets.
US equities took a breather after posting a sharp recovery on Monday as investors weighed financial sector jitters. Hopes to end the US government shutdown, and key corporate results could set the market tone for weeks. The S&P 500 futures remained broadly unchanged under 6,800, while Nasdaq 100 futures remained above the 25,000 mark. Dow futures were steady around 47,000 as markets digested an intense session led by tech giants.
The megacap rally pushed the S&P 500 and Dow to surge around 1.1% while the Nasdaq gained 1.4%. Apple rallied as the demand for iPhone 17 remained upbeat, while Nvidia gained amid persistent enthusiasm around AI spending. The relief rally was further supported by strength in regional banking after Zions Bancorporation posted better-than-expected quarterly results, calming concerns from small lenders. White House economic adviser Kevin Hassett told CNBC, “The shutdown is likely to end anytime this week.” This lifted the risk appetite after weeks of political deadlock and data blackout.
Still, the markets remain cautious as Bank of America strategies warned that continued private-credit concerns could trigger broader selling if long-only investors and pension funds face markdown pressure. This could amplify downside in passive index products. BofA’s Savita Subramanian observed, “Forced liquidation risks merit selectivity.” She highlighted that multiple pre-sell signals across valuation metrics are visible. Regional bank weakness has lowered the sector index for four consecutive weeks, underscoring credit anxieties.
Earnings season adds more to the volatility in equities as investors are bracing for reports of giants like Tesla, Netflix, Intel, and banks like Goldman Sachs and JPMorgan. Market participants will analyze clues for AI spending durability and consumer spending. “The market’s next big test may be big tech earnings…as investors will be looking for more clarity on how spending on artificial intelligence is leading to profitability,” said Rick Gardner of RGA Investments.
Operation risks also popped up as an AWS outage disrupted services across various platforms on Monday. This is a reminder that single-point dependency in infrastructure could dent sentiment even when fundamentals remain supportive.
Future traders will be eying the delayed US CPI report for September and Fed deliberations next week. The markets will likely fluctuate between relief rallies and headline-driven pullbacks until clarity returns on credit and inflation.