Tariff Concerns Are Eased, But Can the Market Resume Its Powerful Uptrend?
Plus, is the biotechnology sector finally ready to recover?
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Early on Monday morning, the indexes have recovered about half of the losses they suffered on Friday after President Trump softened his rhetoric about China and indicated that a planned meeting with Premier Xi later this month is still likely to occur.
Trump’s typical approach to tariff negotiations involves promising aggressive action, only to back off after a strong market reaction. What he did on Friday regarding China was nothing new, but the market had been looking for an excuse to sell off, and this served as a good catalyst. If technical conditions had not been so stretched, the response would likely have been less severe. However, the news provided an excuse to hit the "sell" button, and that is what happened.
Trump has indicated that there is no immediate danger of aggressive tariffs going into effect until around November 1. There is likely to be a steady diet of news flow about the relationship with China, which is likely to be positive if a real deal is made.
The immediate question for investors is whether the market can thoroughly shake off the barrage of selling that hit on Friday and resume its uptrend. Many market participants have been rooting for corrective action to help remove some of the excesses and froth. A one-day pullback helps, but the talk about valuations, bubbles, and overbought technical conditions is not going to go away at this point.
The China situation will fade for now as investors shift their attention to upcoming earnings. Major banks are set to report later this week, and then intense focus will be on the upcoming results from the Magnificent Seven (MAGS) names The bulls believe AI is still in its infancy, while the bears are convinced that a bubble has already formed and will only worsen. Earnings will help to shift sentiment in that regard.
There is an interesting article in The Wall Street Journal on Monday morning: "Why Biotech’s Rally Can Last This Time." As someone heavily invested in the sector, it is refreshing to see some long-overdue focus on the area that has lagged for years. Biotech, unlike most of the market, is still 40% below its pandemic peak. I’ll have more on this as things develop.
Investors have not totally shrugged off Friday’s carnage, but the dip buyers are very active, and we’ll see how aggressive they are after the opening bell rings.
At the time of publication, Rev Shark had no positions in any securities mentioned.
