US tech stocks look to pare losses

The recent rally in stocks reversed sharply on Friday as tariff concerns dominated headlines, reminding investors that cutting-edge technologies still depend on one of the oldest industries: mining. Following the implementation of new export rules by China, which produces about 70% of ‘rare earths’ (source: mining-technology.com), the Trump administration threatened to impose 100% tariffs on Chinese goods from Nov. 1.

However, after President Donald Trump struck a more conciliatory tone on China on social media over the weekend, US stocks were set to pare losses at the market open on Monday.

Predictably though, last week the Morningstar US Technology Index bore the brunt of Trump’s latest tariffs announcement, falling 2.5% over the week with hardware manufacturers Apple AAPL (down 3.4%), Broadcom AVGO (down 6%), Intel INTC (down 3.9%) and Nvidia NVDA (down 5%) particularly hard-hit. The decline also extended to consumer cyclical stocks (down 3.6%) as Tesla TSLA fell 5.1%. Although consumer defensives (up 0.5%) and utilities (up 1.3%) provided some diversification benefit for investors, all other sectors fell.

Periods like this can tempt investors to narrow their focus and let biases shape short-term forecasts that drive portfolio changes. This is dangerous as the near-term path of prices is always unpredictable and consequently, investors run the risk of being ‘whipsawed’ as changes are made to portfolios. Before acting, it is important to remember that these episodes (and even much deeper crises) should not result in permanent damage to a well-structured portfolio and are, instead, a normal part of the journey that is experienced by all successful investors.

Energy stocks hit by crude oil price slide

Despite the technology-focused headlines, the steepest declines were to be found in the energy sector (down 4.1%) as the price of crude oil fell 5.4%. While the proximate cause of this decline was the ceasefire agreement in Gaza and the expectation of declining tension in the Middle East, it is worth noting that energy prices have been weak over the past year on fears that production will outstrip demand. The negative sentiment caused by this imbalance has driven energy companies from trading at a small premium to Morningstar’s estimate of fair value to a significant discount over the last 18 months. Morningstar’s Joshua Aguilar examines the well of opportunities created by this decline here.

Spotlight on crypto in hunt for safe havens

The sharp fall in bitcoin and ethereum last week highlighted the weakness of cryptocurrencies as an effective diversifier for stocks. Rather than providing a safe haven, they instead delivered accelerated exposure to investor uncertainty.

In contrast, government bonds played their traditional diversifier role, rising 0.5%. However, credit investors fared less well as spreads, the additional yield credit investors receive for accepting default risk, rose from near historic lows, leading to a 0.8% fall in US high yield bonds over the week. This rise in credit risk coincided with the high-profile bankruptcy of auto-parts supplier First Brands. The debt of this company was held by several alternative credit funds, highlighting the importance of understanding the composition of novel strategies. Max Curtin unpacks that exposure in this article.

Earnings season set to pack a punch

As we enter the first big week of earnings season, analysts are expecting strong results. In contrast to most quarters, forecasts of company profits have been rising in the preceding weeks. Companies tend to guide down analysts forecasts in a transparent attempt to raise the stock price when they subsequently deliver a positive ‘surprise’ in the results. The absence of this negative guidance creates the possibility of a genuine surprise. This view will be tested first by the financial services sector, as most of the large companies in that sector will report this week. According to FactSet, analysts are expecting year-on-year earnings growth of 13.2% here, setting a high hurdle for surprise.

Economists would ordinarily be focused on the latest monthly Consumer Price Index this week, seeking evidence of the impact of tariffs, but if the government shutdown persists, this data will be delayed, and attention will likely shift to anecdotal insights from the Fed’s Beige Book on Wednesday. You can keep up to date with all the economic and company releases by using this calendar.

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