Upbeat corporate earnings from U.S. banks and Washington's attempts to de-escalate the trade conflict with China allowed the S&P 500 to extend its rally. The broad market index has recovered most of the losses suffered during the sell-off triggered by the White House's announcement of 100% tariffs on Chinese goods. The current pullback looks more like a rational recalibration than a reversal.
The six largest U.S. banks earned $41 billion in profit in the third quarter, 19% more than during the same period in 2024. Shares of Morgan Stanley and Bank of America jumped by 4.4% and 4.7%, respectively. A positive signal for the S&P 500 came from banking executives' statements about a still-healthy economy, noting that American consumers continue to spend despite the uncertainty associated with White House policy.
S&P 500 Dynamics and VIX Volatility Curve
Uncertainty is certainly high. Investors had assumed trade conflicts were behind them. However, another outburst from Donald Trump brought a threat to increase tariffs on China by 100% starting in November. This has led to an inversion of the VIX curve. Rising demand for short-term derivatives could indicate that heightened volatility will persist in the near future.
At the same time, the fact that the S&P 500 remains close to its record highs is evidence that the escalation of the U.S.–China trade conflict is not yet signaling alarm. It suggests that most of the speculative excess has been flushed out of the market. The S&P 500 has shed its ballast and is now in a position to continue its rally—an outcome the White House continues to promote.
According to Scott Bessent, if Beijing refrains from tightening export controls on rare-earth minerals, the United States may extend current low tariff levels for more than 90 days. November will mark the time to revisit previously imposed tariffs, and such rhetoric from the White House signals its willingness to follow a path of trade de-escalation.
Another supportive factor for the S&P 500 is the appointment of Stephen Miran, who was named to the FOMC by the president and has retained his role within the U.S. administration. Miran stated that the Washington–Beijing trade war increases the risk of a cooling U.S. economy, which calls for immediate action by the Federal Reserve to cut the federal funds rate.
In summary, strong earnings from U.S. banks, the White House's indications of de-escalating the trade conflict with China, and expectations for continued monetary expansion from the Fed are all bolstering the stock market. However, the volatility curve inversion amplifies the risks of near-term consolidation for the broad market index.
Technically, the daily chart shows that S&P 500 bulls are attempting to restore the upward trend. However, the market remains in a dead zone—a cluster of moving averages and fair value. Buy positions will become relevant from 6725, but failure to hold above this level will raise the risk of consolidation and provide an opportunity to sell.
