Markets React to Trade Tensions as Investors Seek Direction from Earnings and Gold

Matthew Rubin Chief Investment Officer

 

1. Markets turned lower late last week as renewed trade uncertainty between the U.S. and China reignited concerns about tariffs, rare earths, and stalled negotiations.
2. Gold’s record-breaking rally and AI’s powerful stock surge reflect opposing sides of investor sentiment: doubt in financial stability versus faith in innovation.
3. With key economic reports paused during the government shutdown, investors focused on corporate earnings as a gauge of U.S. growth and resilience.

 

1. Renewed U.S.-China Trade Tensions Weigh on Markets

Markets closed the week lower after tensions flared again in U.S.-China trade relations. President Trump said on Friday that tariffs on Chinese goods could rise significantly, alarming investors and renewing uncertainty about ongoing negotiations between the world’s two largest economies.¹ Trump’s comments came a day after China introduced new limits on the export of rare earth elements and related technologies — resources that play a vital role in industries ranging from aerospace and defense to electric vehicles and consumer electronics.¹

The announcements threatened to derail progress in U.S.-China trade talks. The two countries have held several rounds of negotiations this year surrounding tariffs, technology, and rare earth exports. Despite multiple agreements in principle, progress has often stalled, and rare earth shipments from China have been inconsistent. Analysts say Beijing appears focused on maintaining dialogue without making major concessions.¹ U.S. and Chinese officials are expected to resume talks in November, with trade in critical minerals again likely to dominate the agenda.

Major U.S. stock indexes fell sharply on Friday, with both the S&P 500 and Nasdaq down more than 2%, reflecting investor concerns about potential supply chain disruptions.¹

2. Gold and AI: Two Surges, One Question of Trust

Gold’s sharp climb past $4,000 per ounce and the surge in artificial-intelligence stocks have defined two of this year’s most striking market stories.² While both have delivered remarkable gains, they represent contradictory forces driving investor behavior — one built on trust in technology’s promise, the other on concern about the global economy’s foundations.

AI stocks wavered briefly last week after margin concerns at Oracle, yet the group quickly regained ground as investors continued to favor the sector’s dominant players. The largest tech firms now account for nearly half of the S&P 500’s 35% rise since April, underscoring how difficult it is for investors to stay on the sidelines even amid bubble concerns.²

Gold, by contrast, has become a refuge for those wary of mounting government debt, geopolitical instability, and the weakening dollar. Prices have climbed roughly 53% this year, supported by record central bank buying and rising demand in China.² For many, gold’s strength signals fading confidence in traditional financial anchors, while AI’s ascent reflects a bet that innovation can still outpace uncertainty — two very different expressions of how investors define “safe” in 2025.

3. Earnings Take the Spotlight Amid Data Delays

With most federal economic data on hold during the government shutdown, investors turned their attention to corporate results for signs of how the economy and consumers are holding up. The third-quarter earnings season began last week, led by major U.S. banks, and will expand across sectors in the coming days. Analysts expect S&P 500 companies to post roughly 10% year-over-year profit growth, marking the fourth consecutive quarter of double-digit gains.³ That follows increases of 13% in the second quarter, 14% in the first quarter, and 15% in the fourth quarter of last year.³

While there are early signs of cooling in the labor market, profit margins have remained near record highs, indicating that many companies continue to operate efficiently and may be benefiting from productivity gains. However, with stock valuations already elevated and approaching past peaks, market performance may depend more directly on whether earnings growth can sustain its current pace through year-end.

For the period ending 10/10/25.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Wall Street Journal
² Barrons
³ Bloomberg

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