Bank Earnings Drive Bullish Market, but Trade War Could Drive Stocks Down
Trade between China and the United States is strained right now and could hurt stocks severely very soon.
Quick overview
- U.S. stocks rose this week, buoyed by strong earnings from major banks like Wells Fargo and JPMorgan Chase.
- Despite the current gains, concerns over the escalating trade war with China and the ongoing government shutdown pose risks to the market.
- Upcoming earnings reports from Morgan Stanley and Bank of America could influence the market's trajectory.
- Inflation remains a concern, and the Federal Reserve's recent rate cut may not be sufficient to counteract the negative impacts of tariffs.
U.S. stocks climbed on Tuesday and remained high on Wednesday thanks in part to healthy earnings statements from Wells Fargo, JPMorgan Chase, and Goldman Sachs.
Even though stocks are elevated this week, with the Nasdaq Composite up 0.58%, they are in danger of dropping as the trade war between China and the Untied States heats up. This week is all about financial earnings reports for banking institutions, but even their positive earnings may not be enough to stave off a bearish market for much longer.
On Wednesday, Morgan Stanley and Bank of America will be reporting their quarterly earnings, which could help continue the bullish market trend we are seeing right now. The stock market is still recovering from a recent trade war escalation between China and the United States as well as the ongoing government shutdown.
Why Stocks Could Drop Soon
The government shutdown is now in its third week as the two political parties refuse to back down on issues of budget. That shutdown has dragged on longer than expected and has dragged the stock market down with it. The ongoing feud between China and the U.S. over tariffs and issue of trade has also hurt the stock market, and even positive earnings are likely not enough to keep stocks elevated for much longer.
There is the ever-present problem of inflation, which was highlighted by Federal Reserve Chairman Jereme Powell recently as the fed issued a rate cut but warned about the economy. The inflation rate is not as high as it was post-Covid, but it is still higher than pre-Covid years and higher than the Fed would like it to be.
The Fed issued a rate cut to stimulate the economy and help with the growing unemployment problem. They may have trouble issuing another one anytime soon, though with tariffs now taking a toll on the stock market. Economics have been saying all year that stocks and employment will be negatively affected by tariffs, and with the trade war escalating this week, it looks like we may start to see some of that impact.
The Dow Jones added just 0.12% on Wednesday but it still hanging close to its record high. The S&P 500 is the only one of the top three stock indices that is down today, with a drop of 0.24%. The three indices are still elevated, but that may not last much longer as we see Trump focus his efforts on the ongoing trade issues with China and the government shutdown continues to drag out.
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