“While markets had to react to the US tariff news on Friday, I suspect many will attempt to treat this as TACO in the making, with the aim by the Trump administration to unlock more rare earth exports from China in upcoming talks,” said Jordan Rochester, head of macro strategy for EMEA at Mizuho Bank, citing a trade known as Trump Always Chickens Out.
For its part, China urged America to resolve differences through negotiations instead of threats. “We do not want a tariff war, but we are not afraid of one,” its Commerce Ministry said in a statement.
The big moves for global markets bracketing the weekend echo their manic swings in April. That’s when Trump shocked investors with his “Liberation Day” announcement of worldwide tariffs, only to eventually relent on many to give time to negotiate trade deals with other countries.
If this time ends up similarly, potentially even after a sharp drop for stock prices, subsiding trade tensions and uncertainty could allow for a rolling recovery to continue into 2026, according to Morgan Stanley strategists led by Michael Wilson.
To be sure, Wall Street may have been primed for a drop and was perhaps just looking for a trigger. It was already facing criticism that prices had shot too high following a nearly relentless 35 per cent run for the S&P 500 from a low in April. The index is still near its all-time high set last week.
Not only did Trump’s backdown from tariffs help launch stock prices since April, so did expectations for several cuts to interest rates by the Federal Reserve to help the economy.
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Critics say the market looks too expensive now after prices rose much faster than corporate profits. Worries are particularly high about companies in the artificial-intelligence industry, where pessimists hear echoes of the 2000 dot-com bubble that imploded.
Broadcom jumped 9.5 per cent for Monday’s biggest gain in the S&P 500 after announcing a collaboration with OpenAI. The maker of ChatGPT will design custom AI accelerators, and Broadcom will help develop and deploy them.
For stocks broadly to look less expensive, either prices need to fall, or companies’ profits need to rise. That’s raising the stakes for the upcoming earnings reporting season, with big US companies lining up to say how much profit they made during the summer. JPMorgan Chase, Johnson & Johnson and United Airlines are some of the big names on the calendar this upcoming week.
At Bank of America, strategist Savita Subramanian is optimistic that companies across the S&P 500 can deliver a bigger overall profit than analysts expected. Besides reports showing a resilient US economy, she also pointed in a BofA Global Research report to how the US dollar’s weakening against other currencies boosts the value of sales made abroad by big US companies.
In other international markets, indexes edged higher in Europe following losses in Asia, which had their first opportunity to react to Trump’s threat from Friday of additional tariffs on China.
Stocks fell 1.5 per cent in Hong Kong and 0.2 per cent in Shanghai.
China reported its global exports rose 8.3 per cent in September from a year earlier, the strongest growth in six months and further evidence that its manufacturers are shifting sales from the United States to other markets.
AP, with Bloomberg and staff writers
