Technology

Morning Bid Tech Banks Propel New US Records as China Struggles

The U.S. bond market rejoins after a holiday, witnessing Wall Street stocks surge to new heights, with the S&P 500 and Dow Jones achieving fresh US records. Despite worries over China's economic stability, excitement in the tech and banking sectors fuels optimism as strong corporate earnings influence global market sentiment.

Morning Bid: Tech Banks Spark New US Records as China Relapses

The U.S. bond market rejoins after a holiday, witnessing Wall Street stocks surge to new heights, driven by excitement in the tech and banking sectors. The S&P 500 and Dow Jones achieved record finishes, marking new US records amidst worries over China's economic stability. This highlights a complex interplay between strong corporate earnings and global market concerns.

Tech Sector Drives US Records in Market Growth

With Taiwan's giant chipmaker TSMC, the main producer of advanced chips used in artificial intelligence applications, expected to report a 40% leap in third-quarter earnings on Thursday, tech stocks led the latest surge. The semiconductor index jumped 1.8% to a more than two-month high on Monday, aided by Arm's 6.8% advance and a 2.4% surge in market heavyweight Nvidia to its best-ever close. Nvidia's market value now stands at $3.39 trillion—just shy of Apple's $3.52 trillion and above Microsoft's $3.12 trillion. The Nasdaq is now back within 1% of the record high it set in July. Learn more about TSMC's impact on the market here.

Banking Sector’s Impact on New US Records

Attention will shift back to financials on Tuesday, with Bank of America, Goldman Sachs, Citigroup, and State Street reporting alongside pharma giant Johnson & Johnson. The first blush of bank results on Friday saw that sector's shares surge, and estimates of annual profit growth for financials have doubled to 4% since the start of the month. Overall, forecasts for the annual S&P 500 earnings expansion in Q3 indicate a dip this quarter to 5%, primarily due to declines in energy and materials. However, analysts remain optimistic about a quick return to double-digit growth for the index in the next quarter and throughout the next year. Find more on bank earnings forecasts here.

Investor Sentiment Amid US Records and Global Economic Developments

There is little in the robust economic news to make investors reconsider their optimism. Bank of America's latest monthly fund manager survey showed a significant jump in global investor optimism, with equity allocations recording their largest increase since June 2020. Cash allocations dropped to 3.9%, while equity exposure rose to a net 31% overweight, and bond allocations suffered a record drop to a net 15% underweight. Read the full survey results here.

Despite stock index futures being marginally off ahead of Tuesday's bell, the biggest drag remained energy stocks, with oil prices falling anew. U.S. crude slid as much as $4 to near two-week lows below $70 per barrel, driven by a weaker global demand outlook due to struggles in China. Additionally, a media report suggested Israel might avoid striking Iranian oil targets, easing fears of a major supply disruption. Check out the latest oil market trends here.

Concerns About China's Economic Stability Against the Backdrop of US Records

China's markets suffered again on Tuesday, reflecting ongoing concerns about domestic demand in the world's second-largest economy. Persistent doubts about recent policy stimulus effectiveness to counteract a property-led growth slide are influencing investor sentiment. The Shanghai Composite slumped 2.5% in heavy trading into Tuesday's close, while the blue-chip CSI300 lost 2.7%. Hong Kong's Hang Seng dropped 3.7%, and the offshore yuan skidded to a one-month low. A report from Caixin Global indicated that China may raise an additional 6 trillion yuan ($850 billion) over three years to fund ongoing stimulus, but investors are seeking more details. Explore more on China's economic outlook here.

Global Developments Impacting US Markets and New Records

Elsewhere, sterling perked up despite news that British pay grew at its slowest pace in over two years, and vacancies fell again. In European earnings, Ericsson shares jumped 8% after the Swedish company reported third-quarter sales above expectations due to rebounding demand for 5G gear in North America. Read more about Ericsson's earnings here.

Key Developments to Watch

Key developments that should provide more direction to U.S. markets later on Tuesday include:

• U.S. corporate earnings: Bank of America, Goldman Sachs, Citigroup, State Street, PNC, Progressive, Charles Schwab, Omnicom, Johnson & Johnson, Walgreens Boots Alliance, UnitedHealth, United Airlines, JB Hunt, etc.

• New York Fed September manufacturing survey, NY Fed October survey of consumer inflation expectations; Canada September CPI inflation.

• Federal Reserve Board Governor Adriana Kugler, San Francisco Fed President Mary Daly, and Atlanta Fed chief Raphael Bostic will all speak, along with European Central Bank President Christine Lagarde.