A resurgence in trade tensions between the U.S. and China squeezed some of the excess out of an enthusiastic market, something investors will keep a close eye on in the week ahead as earnings loom. The government shutdown is also stretching into a new week. Stocks sold off Friday, with the Dow Jones Industrial Average dropping more than 600 points intraday after President Donald Trump threatened higher tariffs on China, a worsening of trade relations between Washington and Beijing that the market had largely priced out since April. The S & P 500 lost more than 1%. The Nasdaq Composite slid more than 2%. Wall Street will now watch to see whether investors will continue to buy the dip, as they have done, for a market that remains near all-time highs. Or, if the threat is the start of something worse for the market, especially as it comes ahead of earnings season, and will likely complicate corporate outlooks. “This latest threat just throws a cloud of uncertainty the market didn’t need on top of the current shutdown,” said Jay Woods, chief market strategist at Freedom Capital Markets. “The good news is that this may just be another negotiating tactic used by the administration that could yield good results over the long term. The knee-jerk sell-off should be another buying opportunity.” “The bad news this new wrinkle of potential and ‘massive’ tariffs is not what the market and company executives wanted to deal with easing into earnings season,” Woods continued. Big banks report If all goes well, earnings could serve as the near-term catalyst for the next leg higher, especially with financials expected to start the season off with a bang. By all accounts, the big banks will have plenty of good news to report, given a rebound in the capital markets, as well as a huge resurgence in dealmaking activity this year, that have boosted their businesses. Citigroup, Goldman Sachs Group, Wells Fargo, JPMorgan Chase, Bank of America and Morgan Stanley are due out with their results Tuesday and Wednesday. A succession of regional banks are also set to post their quarterly results. The financials sector in the S & P 500 is expected to report a blended earnings growth rate of 12.9%, the fourth biggest contributor to quarterly earnings growth behind information technology, utilities and materials, according to FactSet data. Meanwhile, the overall index is set to post a blended earnings growth rate of 8.1%. That could give the market the reassurance it needs to march higher. “Earnings should continue to hold up, and with rates coming down and there being few alternatives, equity multiples should also continue to hold,” Chris Marangi, co-CIO of value at Gabelli Funds, said. Oct. 15 deadline approaches To be sure, other worries could sharpen into something worse in the week ahead, including the government shutdown as a major deadline looms: Oct. 15. It’s the next pay date for most federal workers, and possibly the first that many employees will miss, as the cessation of government operations stretches into its second week. According to Polymarket, the odds of the shutdown ending before Oct. 15 are down to just 6%. The stock market has been able to shrug off the government shutdown thus far, trained as it has been that government furloughs historically have just about never mattered. Yet, a caustic congressional showdown between Democrats and Republicans could wear on investors the longer it continues. On Thursday, the IRS said that it’s furloughing roughly half of its workers, and on Friday, budget chief Russell Vought said federal workers had begun to receive layoff notices . Without a reprieve, more government workers will be without pay in the coming days. A longer shutdown will delay the release of more government data. The consumer and producer price indexes for the month of September were due out next week. However, the CPI will now be bumped back nine days until Oct. 24, as the Labor Department calls back staff to compile the report. The rare reprieve from the data blackout is due to the Social Security Administration’s need to have third-quarter CPI data to calculate and publish its annual cost-of-living adjustments. Wall Street has been flying blind on important aspects of the U.S. economy. Inflation has ticked higher in recent readings, but has thus far remained tame enough for the market to brush off. The data has grown more important in recent weeks, as the prospect of higher inflation possibly denting the interest rate outlook is considered a major risk for equities. “The market seems to be pricing in a slowing economy at lower rates,” Marangi said. “To the extent that inflation will accelerate and keep the Fed continuing on account to cutting rates, that would be a meaningful impact on the market.” Wall Street is coming up with its own estimations for what’s going on in the economy. On Friday, Bank of America said its internal data shows that U.S. job growth weakened in September, though wage growth rose across income levels, pointing to continued resilience in the consumer. Elsewhere, Morgan Stanley worried the quality of government data is deteriorating, saying October collections of price data that go into calculating CPI are already missing. Bubble or not? Meanwhile, gold has surged to all-time highs, notably breaking past $4,000 for the first time ever, a milestone that has puzzled investors who aren’t sure what to make of the move. Traditionally a safe haven, gold’s outperformance at a time when stocks are also at all-time highs has some traders nervous other forces are at play. A debasement trade , in which investors are choosing bullion over the U.S. dollar as central banks around the world lose trust in the U.S., for example. Other corners of the market are showing concerning signs of froth. This week, the S & P 500 and Nasdaq Composite jumped to all-time highs. Nvidia’s dominance continued, with the AI chipmaker notching its own records. Tech and industrials both hit record highs. The Meme ETF made a return , potentially a signal of a market top. That exuberance has many warning that the stock market is in an AI bubble. Traders, fearful of missing out on the rally, are piling into equities in a way reminiscent of the 1990s, when a feeding frenzy on early internet companies inflated the market right before the bursting of the dot-com bubble. “My guess is that I think all the ingredients are in place for some kind of a blow off ,” billionaire investor Paul Tudor Jones told CNBC’s “Squawk Box” this week. “History rhymes a lot, so I would think some version of it is going to happen again. If anything, now is so much more potentially explosive than 1999.” Even that grim prognosis, however, isn’t keeping investors from the market. Many are convinced that the massive amount of spending in the data center buildout will keep the AI rally going for the foreseeable future. Many are planning to enjoy the ride. It’s just a matter of getting off at the right time. The calendar for the week ahead will only include earnings reports. The collection of U.S. economic data has been disrupted because of the government shutdown and will likely be delayed. Week ahead calendar All times ET. Monday, Oct. 13 Columbus Day Bond market closed Earnings: Fastenal Tuesday, Oct. 14 Earnings: Citigroup , Goldman Sachs Group , Wells Fargo , JPMorgan Chase , Johnson & Johnson , Domino’s Pizza , BlackRock Wednesday, Oct. 15 Earnings: J.B. Hunt Transport Services , United Airlines , Prologis , Morgan Stanley , Abbott Laboratories , Bank of America , Citizens Financial Group , Synchrony Financial , The PNC Financial Services Group , Progressive Thursday, Oct. 16 Earnings: Interactive Brokers Group , CSX , The Travelers Cos. , U.S. Bancorp , Snap-On , KeyCorp , The Bank of New York Mellon , Charles Schwab , M & T Bank , Marsh & McLennan Cos. Friday, Oct. 17 Earnings: State Street , Schlumberger , American Express , Fifth Third Bancorp , Regions Financial , Truist Financial , Huntington Bancshares — CNBC’s John Melloy contributed to this report.
