Stocks slumped out of the gate Tuesday amid renewed worries over U.S.-China trade relations. However, the main market indexes finished well off their intraday lows – with one of the three ending in positive territory – after a strong start to third-quarter earnings season and aspeech from Fed Chair Jerome Powell that kept the door open for an October rate cut.
True to form, stocks have been volatile so far this October. On Friday, for instance, the main indexes plummeted after President Donald Trump accused Beijing of being "hostile" and threatened to hike tariffs an d cancel an upcoming meeting with Chinese President Xi Jinping.
But stocks bounced back sharply Monday after President Trump toned down his rhetoric toward China over the weekend.
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And today, the main indexes were staring at early morning losses ranging between 1.3% and 2.1% after China sanctioned five U.S. subsidiaries of South Korean shipbuilder Hanwha Ocean, which prohibits Chinese companies from doing business with them.
This followed decisions from both Washington and Beijing to impose tit-for-tat port fees on each other.
But cooler heads prevailed by lunchtime, with U.S. Trade Representative Jamieson Greer confirming the scheduled meeting between President Trump and President Xi is still on the books.
At the close, the blue chip Dow Jones Industrial Average was up 0.4% at 46,270. The broader S&P 500 was 0.2% lower at 6,644 and the tech-heavy Nasdaq Composite finished down 0.8% at 22,521.
Powell speech hints at October rate cut
In an early afternoon appearance at the National Association for Business Economics Annual Meeting, Fed Chair Powell stated that the central bank is nearing a point where it can stop reducing bond holdings on its balance sheet, a process known as "quantitative tightening" that it has been undertaking since mid-2022.
Powell also said that while the government shutdown has delayed the release of key economic reports, the central bank is still reviewing a "wide variety of public- and private-sector data that have remained available."
Based on the data that they do have, he noted that it's "fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago."
And the market took this as confirmation that the Fed will issue another quarter-percentage-point rate cut at its meeting later this month. According to CME FedWatch, futures traders are currently pricing in 97% odds that this will happen – up from 79% one month ago.
Bank stocks are mixed after earnings
Bank stocks were in focus Tuesday as several of the country's largest financial institutions reported third-quarter earnings. Wells Fargo (WFC, +7.2%) and Citigroup (C, +3.9%) gained ground after reporting top- and bottom-line beats.
But JPMorgan Chase (JPM, -1.9%) closed lower after its results, even though they came in higher than expected.
"This morning's report was par for the course for JPM, as the company continues to show why it's the juggernaut in the space," says David Wagner, head of equity and portfolio manager at Aptus Capital Advisors.
But he notes that the lack of follow-through comes as shares are "already up 30% year to date, leaving the stock trading near 2.5 times book value."
Analyst sees 23% upside for Caterpillar stock
Elsewhere, Caterpillar (CAT) emerged as the best Dow Jones stock Tuesday, climbing 4.5% after another analyst weighed in on the company's AI potential.
Specifically, JPMorgan analyst Tami Zakari said the company's power business, which makes generators used in artificial intelligence data centers, could boost Caterpillar's earnings per share by $10 over the next three years.
Zakari adds that the company's Energy and Transportation segment, which houses its power business, could see "a double-digit percent annual sales tailwind … between 2026 and 2028."
She has a Buy rating on the blue chip stock, and lifted her price target to a Street-high $650, representing implied upside of 23% to current levels.
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