What Q3 earnings are showing us, government shutdown anxiety and year-end planning.
We are, as ever, caught in the tug of war between headlines that cry “risk” and fundamental reports from technology and large financial services companies that proclaim “growth”. While it’s early days for Q3 earnings reporting season, it was breathtaking to see companies like Taiwan Semiconductor Manufacturing report a 40% surge in quarterly profit and raise its 2025 revenue forecast, again, thanks to strong AI demand.
Semiconductor-supplying giant ASML Holding joined in on the positive price action as well, even as U.S. export restrictions to China, a key market for the company, have caused investor anxiety. Large Wall Street banks like Morgan Stanley and Bank of America reported strong results, boosted by a boom in dealmaking and resilient trading activity.
In contrast, though, regional banks caught investor eyes after the likes of Zions Bancorporation and Western Alliance reported challenged loan portfolios in the wake of two auto-industry-related company bankruptcies. JPMorgan CEO Jamie Dimon commented on the situation, saying, “when you see one cockroach, there are probably more,” which sparked investor anxiety about credit stress and the growth of the private credit market and its relative opacity. There was a fear reminiscent of the swift and punishing price action around Silicon Valley Bank and First Republic that ultimately led to their demise in 2023. Strong earnings reports from other regional banks like Truist, Regions and Fifth Third Bank this morning are easing worries, for now.
It’s no surprise to see markets decline in the context of a continued government shutdown, limited economic data, and a renewed trade war with China. But these losses remain fairly contained, though volatility has spiked. When will some of these overhangs end?
Speaking of China, the country made a move late last week to dramatically expand its rare earth element export controls, a market it dominates and which is essential to tech manufacturing. President Trump announced additional 100% tariffs on China’s U.S.-bound exports in response, along with new export controls on “any and all critical software” by Nov. 1.
This morning, Trump acknowledged that his proposed 100% tariff on goods from China would not be sustainable but said “that’s what the number is” as an indication he does not intend to back down to Beijing. Trump did confirm that he will meet with Chinese President Xi Jinping in two weeks in South Korea and expressed admiration for him. While Trump has made clear he revels in the back-and-forth that characterizes his “art of the deal” style of negotiating, investors are feeling uneasiness when that counterpart is China. Even so, Treasury Secretary Scott Bessent made clear this week that stock market volatility will not deter the Trump administration from protecting U.S. interests.
Turning to the government shutdown, we are on day 17 with no progress. Instead, we are getting dueling press conferences from both parties and band-aids to keep workers on furlough from being permanently laid off and paychecks flowing to service members and law enforcement officers. Nov. 1 could be a key date, as it is the beginning of open enrollment for people getting coverage through the Affordable Care Act. Most states will send notices laying out the cost of coverage without federal subsidies—the higher price tag will be a shock to the public, especially right before the holidays. Lawmakers on both sides are openly anxious that the shutdown could extend for weeks, and as a result, so are markets.
We are focused on our conversations with you as we approach year-end, taking some profits with markets still close to all-time highs and making sure we shore up your allocations as we strive to set the best plan possible for 2026. We want to prioritize any planned spending or giving on your docket over the next six to 18 months, as well as consider how to maximize your interest income on that cash. Let’s also make sure we contemplate tax-loss harvesting if losses exist anywhere, and consider options for charitable giving that might help rebalance positions with large profits.
Finally, and perhaps most importantly, we want to make sure you feel confident in your portfolio positioning, with healthy weightings in important sectors like technology that benefit from this AI boom, as well as other investments that stand to benefit as the use of that technology expands across sectors and drives profits. With the dollar still under pressure, there are also opportunities in overseas markets we think will continue given the President’s agenda, especially as most of the publicly traded companies overseas are much less expensive than their U.S. counterparts.
You might have noticed this article leads with a quote from Shakespeare, from “Romeo and Juliet”. It is about making thoughtful decisions, something our star-crossed lovers did not do. We look forward to helping you make good financial decisions in a world of change, stress, but also opportunity, doing so carefully and with intention.
Written by a human.